Godrej Soaps: Making the right moves but… - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Godrej Soaps: Making the right moves but…

Sep 26, 2000

Godrej Soaps, the consumer products to chemicals company has been in the news lately. The company whose valuations are one of the lowest on the bourses (P/e 3.5 times FY00 earnings) is in the throes of a restructuring. The reasons for its poor valuations are not hard to find. Though Godrej Soaps has some well-known brands in its portfolio including Cinthol, Good Knight and Jet, investors are wary of this company because of the management’s traditional unfocussed approach to the business. The company also has a lot of investments in other Godrej group companies and a huge debt burden (Rs 3.4 bn in FY00). The company has been restructuring its operations. It recently divested 22.5% of its stake in Godrej Sara Lee joint venture to its holding company, Godrej Boyce for a consideration of Rs 509 m. This not only helped it reduce a part of its huge debt burden but also aided it to report a stupendous 300% jump in net profits.

That’s not all. Godrej Soaps still has around 26.5% stake in the Sara Lee JV. The company plans to offer 25% to the public. The company has indicated that it will utilise the proceeds from this public offering for reducing its debt further. This will again add to the company’s operating efficiencies and margins.

The company’s consumer products division has shown encouraging growth in FY00. In FY99, edible oils (commodity) accounted for 33% of turnover, chemicals 27% and consumer products 29%. Cut to FY00, the company moved out of the edible oils. This proved to be a good move. The sales mix in FY00 was: 49% consumer products, 37% chemicals and the remaining 14% taken up by contract manufacturing and edible oils.

Attaining the right mix
  

Taking into consideration the high returns offered by the consumer products division (around 36% return on capital) the management not only decided to buy out more brands to add to its portfolio (Ezee, Trilo and Key) but has also decided to demerge its consumer products and chemicals divisions into two separate companies in the next six months. The management hopes to unlock the potential valuations of the consumer products division and make it more comparable to other leading FMCG companies like HLL and Nirma. The demerger will also reduce the debt burden for the consumer products division to around Rs 1.5 bn.

All these steps seem very positive for growth in the FMCG business. But concerns still remain on cross holding between group companies. Godrej Soaps is looking at increasing its stake in group companies Godrej Foods and Godrej Photo-me. It is also looking at property development business. So for Godrej Boyce, the holding company all this might be good, but for the Godrej Soaps’ retail shareholders this constant deviation from core businesses is definitely is cause for concern.

Equitymaster requests your view! Post a comment on "Godrej Soaps: Making the right moves but…". Click here!

  

More Views on News

GODREJ INDUSTRIES 2020-21 Annual Report Analysis (Annual Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

Here's an analysis of the annual report of GODREJ INDUSTRIES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of GODREJ INDUSTRIES. Also includes updates on the valuation of GODREJ INDUSTRIES.

GODREJ INDUSTRIES Announces Quarterly Results (1QFY22); Net Profit Up 222.1% (Quarterly Result Update)

Aug 16, 2021 | Updated on Aug 16, 2021

For the quarter ended June 2021, GODREJ INDUSTRIES has posted a net profit of Rs 1 bn (up 222.1% YoY). Sales on the other hand came in at Rs 29 bn (up 46.0% YoY). Read on for a complete analysis of GODREJ INDUSTRIES's quarterly results.

Adani Wilmar IPO to Hit the Market Soon. Should you Apply? (Views On News)

Nov 29, 2021

The parent company of the brand Fortune is set to raise Rs 45 bn from the market.

What Happens if ITC Hives off ITC Infotech? (Views On News)

Nov 20, 2021

The cigarette to hotel conglomerate is reportedly mulling the demerger of its software business at a valuation of around Rs 250 bn.

What Sparked an 8% Rally in ITC Shares Today? (Views On News)

Sep 16, 2021

ITC did not participate in the rally after the second wave and continued to underperform its peers. Is this about to change?

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

GODREJ INDUSTRIES SHARE PRICE


Dec 3, 2021 (Close)

TRACK GODREJ INDUSTRIES

  • Track your investment in GODREJ INDUSTRIES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON GODREJ INDUSTRIES

GODREJ INDUSTRIES - VASUNDHARA RASAYANS COMPARISON

COMPARE GODREJ INDUSTRIES WITH

MARKET STATS