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Godrej Soaps: A new wash? - Views on News from Equitymaster
 
 
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  • Aug 3, 2000

    Godrej Soaps: A new wash?

    Godrej Soaps has been in the limelight over the past two days. The stock has gone up by 8% each in the last two days. The reasons are not far to seek.

    The company has announced the demerger of its consumer products division, the buying of the brand ‘Cinthol’ from a group company Godrej & Boyce (which holds the brand), knocking of investments in Godrej Sara Lee (by way of an offer to the public) and repaying a considerable amount of debt.

    The consumer products division operates at gross margins, which are almost thrice that of the chemicals division and yields a return on investments more than double that of the chemical division. The company’s brands such as ‘Cinthol’, ‘Ezee’, ‘Fairglow’ and ‘Nikhar’ are well known and enjoy a market share of 6%.

    Godrej Soaps, had in the past entered into alliances with P & G but with P & G deciding to dilute its presence in personal wash, the company faced the imminent danger of reduced importance given to Cinthol. (P & G’s own brand ‘Camay’ lost market share during this time.) This prompted Godrej to rethink its alliance with P & G despite being faced with the prospect of losing its distribution network. Godrej rebuilt the distribution network only to give it away once again when it allied with Pillsbury for the branded staple joint venture.

    The company however manages the venture with Sara Lee and will divest its stake to the public via the public offer. This would enable to bring down its debt from the current level of Rs 3425 m to around Rs 1500 m. Two of the company’s four plants are also likely to remain with the chemicals company. While the ratio in which the shares of the consumer products company would be given to the shareholders of Godrej Soaps is not known, the announcement for the de–merger has been greeted by the market.

     

     

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