Godrej bets on Latin America

Mon, 24 May 11:30 am

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Indian markets are seen holding on to their opening gains and trading range bound in the last two hours of trade. Buying interest is seen in stocks from the oil & gas and metals space. Investors are showing marginal interest in defensive stocks such as those from the healthcare and FMCG sectors.

BSE-Sensex is trading up by 193 points while NSE-Nifty is trading 63 points above the dotted line. BSE-Midcap index is trading higher by 1.5% while the BSE-Smallcap index is trading 2% above yesterday’s closing. The rupee is trading at 46.69 to the US dollar.

As per a press release, Godrej Consumer Products Limited (GCPL) is acquiring 100% stake in Issue Group. Issue Group is a hair colour company based in Latin America and has a strong presence in Argentina, Peru, Uruguay and Paraguay. Issue group enjoys a volume market leadership in Argentina with over 20% market share. The sales of the company in 2009 were over US$ 33 m. The hair color market in Argentina is estimated at over US$ 200 m and has shown a 22% CAGR over the last 2 years.

The Issue group acquisition has been valued at approximately 8 times operating (EBITDA) income and is expected to be EPS accretive for GCPL from the first year of operations. This is the first acquisition of GCPL in Latin America. Issue group is expected to complement GCPL’s strengths as it is positioned in the mass market segment. Moreover, this acquisition provides a distribution platform for GCPL’s portfolio of products.

Kanoria Chemicals released its results 4QFY10 and FY10 results last week. The company’s top line fell by 14% YoY during the year. This fall was due to lower realizations for the year. In fact both the company’s segments viz. chloro chemicals and alco chemicals saw double digit fall in revenues. For the year, operating (EBITDA) products fell by 26% YoY as a result of sharp increase in staff costs as well in power costs. However, net profit increased by 92% YoY as a result of forex gains. On the other hand, when adjusted for forex gains, the net profit is seen to fall by 65% YoY. For the quarter, the top line fell by 13% while the bottom line fell by 83% YoY. However, when adjusted for forex gains, the bottom line turns negative. The company suffered during the year as it is a commodity company and hence does not enjoy any pricing power. However, the concerns are expected to get ironed out going forward.