FMCG firms rely on local production after slump in Africa
MUMBAI: African subsidiaries of Indian packaged consumer goods makers are facing the heat after markets in the region devalued their currencies by 40-50% against the rupee, making Indian exports more expensive. For a way out, they are turning to local manufacturing and acquisitions.
Annual reports of Marico Ltd, Dabur India Ltd and Godrej Consumer Products Ltd show that profits of their units in Nigeria, Egypt, and South Africa, among others, have been dented in the last two financial years.
Marico Egypt for Industries SAE posted a ₹1.2-crore loss in 2016-17 after two profitable years as revenue fell 60% year-on-year. Marico South Africa Consumer Care (Pty) Ltd’s profits recovered year-on-year but were still 1.5% lower than 2014-15 at ₹3.26 crore.
“The severe macro-economic headwinds in the Middle East and North Africa (MENA) region have led to the muted growth (of 1%) in the international business this year,” Marico MD and CEo Saugata Gupta said in the annual report for 2016-17.
The company declined to comment for this story.
Dabur’s subsidiary African Consumer Care Ltd reported a ₹556-crore loss for 2016-17, 23.9% narrower than 2015-16, but 66% higher than in 2014-15.
Dabur Egypt Ltd managed 38% growth in margins but its revenue fell 8.87% from a year earlier to the level it was in 2014-15. “Currency devaluation has been the major reason for this dip in value growth on translation,” a Dabur spokesperson said in response to an emailed questionnaire. “Business has registered growth in constant currency terms.”
“In Egypt too, sharp currency devaluation played spoilsport,” the spokesperson said. “The Egyptian pound has devalued by over 50% over the last one year, resulting in translation losses. In constant currency terms, howPharma, ever, the Egypt business has grown in strong double digits.”
The ‘Africa cluster’ of Godrej Consumer Products—including Ghana and Tanzania—has grown 24-26% every quarter since JanMarch 2015. But individual subsidiaries show signs of strain.
Godrej East Africa Holdings Ltd and Godrej West Africa Holdings Ltd both slipped into small losses in 2016-17, as did Godrej Nigeria Ltd and Godrej Tanzania Holdings Ltd.
“Like other parts of the world, individual geographies in Africa do face geopolitical and currency volatility,” GCPL MD Vivek Gambhir said in an emailed response. “We believe that we are well-hedged by a diverse geographic portfolio and over time, a broader category presence.”.
All three firms called out currency volatility as a challenge to African expansion plans. Bloomberg data shows the Nigerian naira and the Egyptian pound have fallen 56.8% and 46.3% respectively against the Indian rupee since September 2015. The devaluation makes exports of Indian products to these countries more expensive.
Now, they are localising production to reduce imports and focussing on merger and acquisition-led led inorganic growth.
While Marico acquired hair care firm Isoplus for ₹36 crore in July to boost its portfolio in South Africa, GCPL acquired US ethnic hair care maker Strength of Nature to sell its products in Africa. Dabur also bought two cosmetics firms—D&A Cosmetics Atlanta and Body & Health Products—for ₹23.75 crore.