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Into rainbow country

Over the past 3-4 years, a number of domestic firms have bid for South African companies. Why is India Inc. headed to South Africa?

     Print Edition: June 1, 2008

Bharti Enterprises’ multibillion dollar play for telecom major MTN may be the first bid for an asset of such magnitude in South Africa by an Indian company, but it isn’t as if that region hasn’t interested Indian promoters before. Over the past 3-4 years, a number of domestic firms, including pharmaceutical majors like Ranbaxy, JB Chemicals & Pharmaceuticals and Glenmark Pharmaceuticals, along with the Tatas, the Godrejs and Vijay Mallya’s UB Group, have bid for South African companies. The latest ‘India into Africa’ transaction was concluded in April when Godrej Consumer Products picked up hair products company KINKY for Rs 140 crore. In 2006, the company had acquired its first company in the country, Rapidol, thereby entering the hair colour business. According to data compiled by Thomson Financial, since 2006, Indian companies have pulled off some 12 buyouts worth a little over $200 million (Rs 800 crore), till date. All these, of course, pale in comparison to the big-bang acquisition made by China’s ICBC, of South Africa’s Standard Bank Group for $5.6 billion (Rs 22,400 crore) last October.

Godrejís Press: Africa beckons
Hoshedar Press
Of course, if Bharti does succeed in bagging MTN, that will change the M&A sweepstakes once again. There are several reasons for companies queuing up to enter the South African market. For one, South Africa is considered the “gateway” to the rest of Africa. As Hoshedar Press, Executive Director & President, Godrej Consumer Products, explains: “We were looking at markets where there is a large population of people with black hair. South Africa fitted that bill.

Moreover, South Africa is like an entry point to the rest of Africa.” Others like Vijay Subramaniam, Head of Marico Ltd’s international business group, believe that consumption of beauty and healthcare products is on the rise as prosperity levels of the ethnic population are on the rise, thanks to social empowerment programmes like BEE (black economic empowerment). That’s making the market ripe for quality products. Marico entered the South African market by acquiring the consumer division of Durban-based Enaleni Pharmaceuticals in a deal valued at around Rs 52 crore. The market for ethnic hair care and relevant over-the-counter healthcare products in South Africa is estimated to be in the region of ZAR (South African Rand) 1.1 billion (about Rs 600 crore) and said to be growing at over 20 per cent.

But it’s not as if tapping South Africa or other African markets is without its share of challenges. “Like several other geographies, talent can be a challenge—especially finding talent with formal qualifications.

In some African countries, other aspects of business like banking, transportation and advertising opportunities are not well developed,” summarises Press.

T.V. Mahalingam

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