ExplainedWhy Godrej Consumer shares fell nearly 6% today

By India Today Business DeskShares of Godrej Consumer Products Limited fell nearly 6 per cent during intraday trade on Friday. At around 1:30 pm, the company’s shares were down 5.62 per cent and trading at Rs 900 apiece. Godrej Consumer was the biggest loser on the Nifty FMCG index.

The sharp fall in the company’s share price came after it announced that it has inked a deal to buy Raymond’s FMCG business, which includes popular brands such as Park Avenue deodorant and Kamasutra condoms, for Rs 2,825 crore.

The deal is likely to be completed by May 10, 2023.

It may be noted that Raymond Consumer Care Limited or Raymond’s FMCG business is being sold to Godrej Consumer along with the trademarks of Park Avenue, KS, KamaSutra and Premium, through a slump sale, said the company.

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Sudhir Sitapati, the managing director and CEO of GCPL, said, “This acquisition allows us to complement our business portfolio and growth strategy with under-penetrated categories that offer a long runway of growth.”

“Raymond is a leading player in the deodorants and sexual wellness categories with brands like Park Avenue and KamaSutra. These categories have the potential to deliver double-digit multi-decade growth given the low per capita consumption in India compared to similar emerging markets,” he added.

“Per-capita consumption (USD) of deodorants in India is 0.4x that in Indonesia, 0.05x that in Brazil and 0.04x that in the USA. We look forward to building on this potential by unlocking the significant integration synergies with our business,” Sitapati said.

However, some analysts feel that the valuation of the deal seems to be expensive, given the tough competition in the male grooming and sexual wellness category.

Analysts at Jefferies said, “Male grooming is a tough category with low brand loyalty & high competition. Sexual wellness too is a completely new line of business for Godrej Consumer, where there are strong healthcare firms in competition.”

“Past deals by GCPL, mainly in overseas market have seen mixed results, company is grappling to resolve issues in Africa (& even Indonesia),” the brokerage added.

Brokerage firm Nomura also termed the deal as expensive and questioned the rationale for acquiring Raymond’s FMCG business. Investec said the men’s grooming and sexual wellness space has been very competitive with weak margins, and it also said the acquisition is expensive.

Meanwhile, Raymond’s shares also dropped over 7 per cent after the deal due to a possible round of profit booking after the stock gained sharply over the past few sessions. The sharp fall in share price came a day after Godrej announced the acquisition of Raymond’s FMCG business.