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Godrej restructuring: Where's the moolah? - Views on News from Equitymaster
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  • Oct 8, 1999

    Godrej restructuring: Where's the moolah?

    After announcing major restructuring moves in the recent weeks, the Godrej management must be working over time to find means to raise approximately Rs 1.8 bn for the proposed initiatives.

    Godrej & Boyce, is an unlisted company with joint ventures in overseas markets including Oman, Vietnam and South Africa. In India, it has eight business divisions (including Godrej Foods and Godrej Soaps) which manufacture and market a wide range of consumer durables and industrial products.

    Recently, the group has been focussing on reducing the debt burden of its listed group companies to improve the returns to investors. As a result, Godrej & Boyce bought out Godrej Foods 29% stake in Godrej Pillsbury for a consideration of Rs 311 m and Godrej Soaps 22.5% in Godrej Sara Lee joint venture for Rs 992 m. Added to this, the restructuring includes a minimum outgo of Rs 480 m for buying out GE's 40% stake in Godrej GE Appliances.

    Though Godrej & Boyce has strong balance sheet, with reserves to the tune of Rs 2 bn in FY98, a substantial amount of the company's funds are blocked in investments in subsidiaries.

    Industry analysts feel that one of the options is to float a rights issue to fund part of the restructuring. Further, analysts feel that Godrej & Boyce's holding in group company Godrej Soaps, which stands at 67%, could be diluted. Even diluting 10% of the equity would net the company Rs 402 m, at current market prices. Another option is to exit from its joint venture company, Godrej Pacific Technology in which it holds a 51% stake. Godrej Pacific Technology is engaged in the business of office automation products.

    While the managers at Godrej juggle to find out the best means of raising resources, it must be good news for investors in Godrej companies. The restructuring exercise will improve the group companies' debt-equity ratio and also help them focus on their key areas of operations. With this, Godrej Soaps is geared to give Hindustan Lever a run for its money in the soaps segment.

    Similarly, the Godrej family gets total stake in the Sara Lee and Pillsbury ventures. The Pillsbury venture has been identified by the group as a key growth area for future.



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