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Godrej group may take its chemicals arm private

Sitaraman Shankar in Bombay

The Godrej group, one of India's oldest conglomerates, may take its chemicals and medical diagnostics company private as part of a restructuring aimed at unlocking suppressed shareholder value, its chairman told Reuters on Wednesday.

By hiving off its chemical operations, Godrej hopes to boost the market value of its faster-growing consumer products business.

The two businesses are now both owned by Godrej Soaps, whose shares are trading at just six times last year's earnings. That compares to price-earnings ratios of 20-25 for other Indian consumer goods makers, and about 10 for other domestic chemical manufacturers.

The Godrej group previously announced plans to split Godrej Soaps into two, creating Godrej Consumer Products Ltd (GCPL) for the soaps, detergents and toiletries businesses, and Godrej Industries Ltd for chemicals and medical diagnostics.

"There is not much further restructuring we can do in the chemicals firm, Godrej Industries," Adi B Godrej said. "We will see how the market values it when it lists as a separate company. If the market does not value it properly, we may look at privatising it."

The two new companies, Godrej Industries and Godrej Consumer Products, will start operating April 1.

The 103-year-old Godrej group makes a range of consumer, food and personal care products, home appliances, office equipment, chemicals and farm products. It also develops real estate and writes software.

Godrej Industries will own stakes in a range of group companies, including packaged drink and edible oil maker Godrej Foods, animal feeds maker Godrej Agrovet, mosquito repellant producer Godrej Sara Lee and real estate developer Godrej Properties & Investments.

US food giant Sara Lee Corp owns 51 per cent of Godrej Sara Lee. The remainder is held by the Godrej group.

"GCPL should do sales of about Rs 6 billion for the next year," Godrej said. That compares with estimated sales of Rs 5 billion for the current year to March.

Godrej said the businesses making up Godrej Industries should ring up sales of about Rs 4.5 billion in the first year of operations, up from Rs 4 billion this year.

Godrej also said that the next phase of restructuring would involve the group's struggling food business.

Godrej Foods makes packaged fruit drinks and branded edible oils.

"We will not invest new money in foods," he said. "In Godrej Foods, margins have been hit in oils and the market has not moved enough towards branding of edible oils."

Godrej said soft drink companies such as Coca-Cola were investing heavily in India, putting pressure on Godrej's fruit drinks.

"We will have a restructuring plan in place in Godrej Foods in six to nine months," Godrej said, but gave no details.

"If you asked me if (drink brands) Jumpin' and Xs were for sale, I would not say a categorical no," he said. "But selling businesses when they are struggling is bad timing."

Godrej Soaps shares were trading at Rs 60.85 late Wednesday, down 1.14 per cent, and Godrej Foods shares were down 0.5 per cent at Rs 10, while the benchmark index was up 0.38 per cent.

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