A Rs 100-Crore Revenue FMCG Company On Sale For Rs 5 Lakh
Not long ago, it was one of the most promising consumer goods startups. Today, its LinkedIn profile throws up an Error 403–Forbidden—an apt description of its current state of affairs.
Why is this company with a gross annual revenue of over Rs 100 crore in the last three years on sale for as little as Rs 5 lakh?
The search for an answer to that question has thrown up a peculiar business story. Of an ousted founder-entrepreneur, an ambitious chief financial officer, and two foreign private equity firms seemingly desperate to exit.
Why else would they, after having invested close to Rs 446 crore in the business, with profitability finally in sight, be willing to sell out for so little?
In an age of unicorns, the story of Global Consumer Products Pvt. unravels like a Greek tragedy.
A Promising Start...
GCPL was founded in 2013 by Arumugan Mahendran, soon after he stepped down as the managing director of Godrej Consumer Products Ltd.—also commonly known as GCPL but we'll call it Godrej Consumer to avoid confusion.
Mahendran had served in various managerial roles over a span of 28 years at many business groups. At Godrej Consumer, he was managing director for nearly seven years before turning entrepreneur himself.
He set out to build a company focused on household insecticides and consumables such as chocolates and beverages, all businesses he had once built for Godrej Consumer.
That Mahendran was sued by his previous employer for breach of trust is a different story. Given his experience in these segments, Mahendran found the backing of two blue-chip investors in Goldman Sachs and Mitsui Group.
Goldman Sachs invested through Broad Street Investments Holding (Singapore) Pte and MBD Bridge Street 2013 Investments (Singapore) Pte, while Mitsui Group invested through MGI Global Fund L.P. and Mitsui & Co Ltd.
“It was a startup,” Mahendran said in a phone interview with BloombergQuint. “I started with investors and I also brought in a brand and created this investment and brought in a team in 2014-15.”
A Muddled Middle...
Over five years, the two investors pumped over Rs 445 crore into the venture. It launched ‘CheriO’ fruit beverages, ‘DND’ household insecticides and chocolates under the ‘LuvIt’ brand.
GCPL followed an asset-light model. While the company owned the product and handled marketing, manufacturing was contracted to a third party.
Net sales rose to over Rs 90 crore within three years of operations and stayed in the Rs 90-110 crore range subsequently. By fiscal 2018, the company had racked in losses worth Rs 328 crore.
Around that time, the corporate marriage started coming apart.
In January 2018, Mahendran stepped down from an active management role. The specific reasons are not known. When asked whether the separation was acrimonious, all Mahendran was willing to say was: “It was an exit by design.”
According to a company executive, who spoke on the condition of anonymity out of employment concerns, internal politics between representatives of the private equity firms and the management made it difficult for Mahendran to stay.
Mahendran wouldn't confirm. He distanced himself from the company starting 2018, he said. "I was inactive from January 2018, though officially on documents it could be June 2019."
By 2019, his shareholding was down to 0.71%. The amended share-purchase agreement between him and the two investors, reviewed by BloombergQuint, provided for the termination of his rights and obligations.
The initial agreement between Mahendran and investors was for six years. Yet, it went sideways after three years and Mahendran decided to exit. He agreed to amend the share-purchase agreement, which released him from all rights and obligations.
Another board insider who spoke to BloombergQuint said Mahendran's exit may have been performance related. But it was a decision among shareholders that was not discussed at the board level. He was given an honorable exit, the insider said, requesting to remain unnamed citing business reasons.
In an emailed response to BloombergQuint, a Goldman Sachs spokesperson “declined to comment” on the queries raised to its nominee director Sriram Kumar.
Similar email queries to the two nominee directors—Hiroaki Sagane and Atsushi Fujii—of Mitsui Group remained unanswered.
The Plot Twist
GCPL's fortunes turned between 2019 and 2021. Mahendran's exit from active management prompted the shareholders to appoint then Chief Financial Officer Kamal Kumar Agarwal as the interim CEO, one of the insiders said. Agarwal was brought in by Mahendran in 2014-15. Agarwal, in turn, hired Sanjay Dawer to join as manager in the finance department.
According to their LinkedIn profiles, both worked together at Cadbury India Ltd. between 2007 and 2008 and subsequently at the Ferroro Group between 2008 and 2014. Both were suddenly catapulted to top positions.
Agarwal was made chief executive officer and subsequently joined the board as a director in September 2019, according to filings with the Ministry of Corporate Affairs. But according to his LinkedIn profile, he is chief operating officer and executive director since September 2019. Dawer was appointed chief financial officer—he joined the GCPL board this year in March, according to MCA filings reviewed by BloombergQuint.
GCPL cut its financial losses, too, in three years. Mostly on account of aggressive cost cuts, the operating loss declined from Rs 94 crore in 2017-18 to Rs 22 crore in FY21, show financial documents filed with MCA.
The (Anti) Climax!
By the end of FY21, Goldman Sachs and Mitsui Group had invested nearly Rs 450 crore in the company through ordinary equity and cumulative convertible preference shares, according to the amended share-purchase agreement between the three investors and company reviewed by BloombergQuint.
The funds were infused in seven tranches, each time at Rs 20 per share. The last infusion of Rs 70 crore was in FY20. That valued the company at Rs 519 crore. One year later, the two investors were ready to sell it for Rs 5 lakh.
Enter Pink Tree Investment Pvt. Ltd., incorporated by Agarwal and Dawer in January 2021 with an initial equity capital of Rs 1 lakh, according to the company's certificate of incorporation filed with MCA. The filings showed the company was set up to undertake strategic investments in other companies.
On June 23, at an extraordinary general meeting called at a short notice, Pink Tree Investment shareholders passed a resolution to invest in GCPL by acquiring shares for Rs 5 lakh.
That same day, Pink Tree Investment signed a share-purchase agreement with Goldman Sachs and Mitsui Entities that owned most of GCPL for the same amount. BloombergQuint reviewed the share-purchase agreement signed by all parties.
The agreement allows sale of 99.29% of the equity capital and 99.36% of the preference capital to Pink Tree Investment. The agreement says, “Due to operational losses over the years by the company, financial under performance over the years, and various commercial considerations, Sellers have decided to sell their entire shares (52.84 lakh equity shares and 25.24 of CCPS) to Pink Tree for a total consideration of Rs 5 lakh."
Pink Tree subsequently raised its equity capital to Rs 5 lakh via allotment of equity shares that resulted in Agarwal owning 90% and Dawer holding 10%.
BloombergQuint's emails to Agarwal and Dawer remain unanswered. When reached over the phone, all Agarwal confirmed was that Pink Tree Investment is an investment vehicle owned by him and Dawer.
While much of the sale action was centered during mid-2021, one insider said work had started early in the year, which is why Pink Tree Investment was incorporated then.
To corroborate that, BloombergQuint reached out to Ashok Kumar Dhingra, the only independent director on GCPL's board at the time. Dhingra resigned in March 2021 citing health reasons.
“I am touching 70 years and due to health considerations, I took the decision to step down from the board,” Dhingra said over phone to BloombergQuint.
He is currently in Bengaluru and has worked with many FMCG companies including HUL and SAB Miller Plc prior to joining the GCPL board in 2014.
“I had no knowledge of any deal when I was resigning and nor I have any knowledge now,” Dhingra said.
Mahendran, too, claimed to be unaware of the sale transaction.
"I do not have an opinion on shareholders selling stake at any value, as it is their prerogative, nobody can question," he said adding that the question of fair value is between the buyer and the seller, income tax authorities, the registrar of companies and other government authorities.
"It is their duty to look into this."