GCPL has entered an agreement for the right to acquire 51% stake in Darling Group Holdings: Godrej Consumer Products (GCPL) enters into an agreement for the right to acquire 51% stake in Darling Group Holdings, one of the largest players in hair care category in Africa with brands like Darling and Amigos; both these brands are market leaders in the countries in which they are present. Darling Group Holdings manufactures and distributes full range of hair extension products in Africa and operates in 14 countries in sub-Saharan African region.
Nature of deal: Financial details of Darling Group and the deal size have not been disclosed by the company. GCPL’s management has said that the deal is going to be EPS accretive from the first year itself and going forward the company plans to acquire 100% stake in the Darling Group. While Darling Group’s current management team will continue to manage the business, GCPL will institute a cross functional team with members from current Darling Group’s management team and its team to leverage synergies.
Our take on the deal: We have not factored the deal in our numbers due to lack of details particularly, deal size and financial details of the company. We believe the acquisition is in line with GCPL’s global 3x3 strategy – presence in 3 continents – Asia, Africa and Latin America through 3 core categories - Home care, Personal wash and Hair care.
Outlook and valuation: We have modeled in a 12.3% CAGR in domestic revenue and a 21% CAGR in international revenue. We expect the company’s operating margin to sustain at ~20% going ahead, supported by higher revenue contribution from the home care division and cross-pollination resulting in synergistic benefits in terms of cost rationalisation. Hence, we expect GCPL to post a 13% CAGR in earnings during the period (post ~ 5% dilution from the recent QIP). At the CMP of `418, the stock trading at 20.6x FY2013E earnings of `20.3. We maintain an Accumulate rating on the stock with a target price of `447.
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