Godrej’s ‘personal’ touch for customers can boost business

This month will mark two years since Godrej Consumer Products (GCPL) announced a change of guard at the top – the appointment of HUL veteran Sudhir Sitapati as its chief executive.

Since Sitapati assumed office in October 2021, there have been incremental changes in GCPL’s strategy and performance – the latest being the acquisition of the fast-moving consumer business of Raymond Consumer Care (RCCL). The Street, however, didn’t seem too convinced about the company’s move as its stock is still 5% lower than what it was before the acquisition. High valuations for foraying into categories that face high competition probably didn’t go down well with investors.

GCPL’s acquisition includes brands Park Avenue, Premium, Kama Sutra and KS in personal care categories of deodorants and sexual wellness. The company paid net value of ₹2,325 crore for this portfolio – amounting to 3.75 times FY23 sales. GCPL is essentially investing one-year cash flow to roughly get 10% of India sales.

This deal feeds into the company’s growth strategy for the next 3-5 years that involves having double-digit volume growth led through category development funded by radical simplification like stock keeping unit (SKU) rationalisation and discontinuing non-core categories.

As the company’s category development capability improved over the past two years, the management now feels confident about developing a few more underpenetrated categories.

GCPL bought the RCCL business due to its categories having a strong growth runway, strong but under-leveraged brands and significant cost synergies which could improve the business’s existing operating profit (Ebitda) margin from high single-digits to strong double-digits. GCPL with its extensive distribution reach in general trade and chemists has great potential to improve the penetration of RCCL’s brands.