Lynch:
Categories of FMCG products which are relatively niche and in product categories with relatively less global competition. They might compete with an SC Johnson or a LOreal globally, but that is better than competing with a Unilever or a Nestle in categories they dominate
The key takeaway is that Indian companies tend to do very well when they are focused on the Indian market. GCPL too, has done exceptionally well in soaps (held number 2 despite HUL) and in Insecticides (taken shares from SC Jhonson) and air fresheners (taken share from P&G). My opening comment mentions that their India business is already as good as a HUL or Nestle in terms of its return profile. A finer point is that if you make a lot of money in say HI. No one is forcing you to re-invest that and make sub-optimal returns. By all means return it back and we shareholders will see what to do with it.
International businesses are always time consuming and very hard to build in the FMCG space - as distribution models which are easier are always tempting but have so many variables. If we look at the Indian business of several global FMCGs - tremendous value creation has now followed with time and patience. I see the Africa business and the Indonesia business as a similar animal - evolving countries with a scope for the product range. It would be very tough to generate ROEs in the beginning there - but with brand building and distribution expansion they should follow
Agree - but I reckon they have been Africa and Indonesia for 10+ years (good enough time?) and they have struggled, particularly in Africa. Think about this way - had they not gone to Africa, it would not have negatively impacted their positions in their domestic categories one bit. I will argue they might have done better in India as Africa has been a huge drain on management bandwidth. So they would rather have just returned excess cash to you as a shareholder.
The question is also the space it occupies in the Indian market. To each their own, but for longetivity of growth, companies like Dabur, Marico and GCPL are not only stable FMCG business, but also potential global players. Versus a Nestle and an HUL building India businesses, at higher valuations, the choice is growth versus safety and ROCE can be compromised for that
I would urge you to look at the share of international capital employed, sales and profits for the companies you mention above. They are substantially lower than GCPLs. Also, someone like Marico sells the same products they sell in India in countries like Bangladesh (coconut oil etc.). Makes common sense. GCPL - like I have commented above, dont get the logic of serving ‘complete’ hair care for African women when you hardly even do that for Indian women (except hair colours).
Agree with the points on Nisaba. A lot to prove - and I was personally disappointed to see Mr Gambhir leave. But I still do credit the Godrej group, I don’t blame business leaders for doing what they please if they think it’s right, consumer goods is a subjective business with several options abs good capital. Maybe he does not want to prioritise ROI and ROCE and is looking at a longer term picture which is more disruptive?
Agree. We will know with time how she fares. But as a company GCPL fares very poorly versus peers (both domestic and MNC) on growth, ROCE, payouts when we look at the last 10 year perf. They key reason for that has been poor capital allocation and aggressive M&A (which Nisaba wants to continue)
What if I project this as an Indian business with scope to increase margins, someone who have dirtied their hands and experienced high potential developing markets and finally having a product range which is well tested and differentiated in a similar developing tropical market like India?
Good luck to you:) Since you are invested, I hope you are right.
3 Likes
