August 17, 2011
Mumbai
Major FMCG players to continue acquisitions to fuel growth
Credit quality unlikely to be affected
CRISIL believes that the major players in India’s fast-moving consumer goods (FMCG) industry will
continue to pursue acquisitions over the medium term, given the significant scope for expansion in
under-penetrated product segments and geographies, and the intensifying competitive pressures in the
domestic market. Homegrown players will continue to scout for small to medium-sized acquisitions,
mostly in the highly populated developing nations, where the targets are attractively priced. The Indian
subsidiaries of global FMCG majors may, however, pursue domestic targets; the size and cost of
acquisition targets are unlikely to be constraining factors for these players, given their robust credit
profiles and sizeable financial flexibility. CRISIL believes that the major players will maintain stable
credit quality over the medium term, given their strong business and financial risk profiles, and the
expected prudent funding of acquisitions. The FMCG sector’s growth prospects remain healthy,
supported by its immunity to economic downturns.
India’s FMCG players made 13 major acquisitions in 2010 (refers to calendar year, January 1 to
December 31), at an estimated cost of more than Rs.50 billion. Most of these acquisitions were global,
and helped the acquirers expand their international businesses, particularly in markets such as Africa,
Latin America, and South (including South-East) Asia. The domestic acquisition targets appear to be
priced significantly higher than those abroad, owing to the large number of takers in India, including
the strong global players. For the homegrown players, outbound acquisitions are not only more
attractive in terms of valuations, but also profitable, and offer quick payback. Says Nagarajan
Narasimhan, Director, CRISIL Ratings, “The overseas acquisitions by CRISIL-rated FMCG
players, such as Dabur India Ltd and Marico Ltd in the recent past, have strengthened the
acquirers’ business risk profiles by enhancing their product offerings and geographical reach.
Moreover, prudent funding of acquisitions has helped the acquiring companies maintain stable
financial risk profiles and credit quality.”
For the global FMCG majors, India remains an attractive market, with its growing economy, large
population that offers considerable scope for additional geographic penetration, particularly in the
rural areas, and low per-capita consumption. Adds Mr. Narasimhan, “The Indian subsidiaries of
global majors have maintained healthy credit quality despite large acquisitions or capital-spending,
driven by their strong cash flows and support from the parent.” Moderation in growth in their home
markets may drive the global players to expand their presence in India.
CRISIL has ratings outstanding on nine FMCG majors, including three subsidiaries of global
companies. The median rating of CRISIL’s FMCG portfolio is in the high-safety (‘CRISIL AA’)
category, reflecting the players’ robust business risk profiles, comfortable capital structure, and
healthy liquidity. Says Anuj Sethi, Head, CRISIL Ratings, “Despite some large acquisitions,
CRISIL-rated FMCG players maintain a comfortable gearing, averaging between 0.6 and 0.9 times,
backed by strong operating cash flows. CRISIL, therefore, believes that these players will maintain
healthy credit risk profiles, even as they continue to scout for fresh acquisitions.” CRISIL believes
that the homegrown FMCG players may prefer small or medium-ticket acquisitions over large, debtfunded ones in the near term, given the current profitability pressures resulting from volatile
commodity prices and rising interest rates.
August 17, 2011
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Recent acquisitions by FMCG players
Acquirer
Month
Dabur India Ltd (rated ‘CRISIL
AAA/Stable/CRISIL A1+’)
Marico Ltd
(‘CRISIL AA/Positive/CRISIL A1+’)
Reckitt Benckiser Group Plc
Godrej Consumer Products Ltd
Jyothy Laboratories Ltd
CavinKare Pvt Ltd (‘CRISIL
A+/Stable/CRISIL A1’)
Emami Ltd
August 17, 2011
November 2010
July 2010
November 2008
February 2011
May 2010
December 2010
June 2011
December 2010
Company acquired
July 2010
June 2010
June 2010
May 2010
April 2008
June 2011
August 2009
Namaste Laboratories (US)
Hobi Kozmetik (Turkey)
Fem Care Pharma Ltd (India)
International Consumer Products Corp (Vietnam)
Derma Rx (Singapore)
Paras Pharmaceuticals Ltd (India)
Darling Group Holdings (Africa; 51 per cent stake)
Naturesse Consumer Care Products Ltd (brand
Swastik) and
Essence Consumer Care Products Ltd (brand
Genteel) (India)
Argencos (Argentina)
Issue Group (Argentina)
Tura (Nigeria)
Megasari Group (Indonesia)
Kinky Group (South Africa)
Henkel India Ltd (65.87 per cent stake)
Garden Namkeens Pvt Ltd (India)
November 2008
Zandu Pharmaceutical Works Ltd (India)
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Media Contacts
Analytical Contacts
CRISIL Rating Desk
Mitu Samar
Head, Communications and
Brand Management
CRISIL Limited
Tel: +91-22- 3342 1838
Mobile No: +91- 9820061934
E-mail: [email protected]
Nagarajan Narasimhan
Director - CRISIL Ratings
Tel: +91-22-3342 3350
Email:[email protected]
Tel: +91-22-3342 3047/3342 3064
Email:[email protected]
Tanuja Abhinandan
Communications and Brand
Management
CRISIL Limited
Tel: +91-22-3342 1818
Email: [email protected]
Anuj Sethi
Head - CRISIL Ratings
Tel: +91-44-6656 3108
Email: [email protected]
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August 17, 2011
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