Godrej Soaps demerges consumer business

According to a company press release, the current subscribed and paid up capital of Godrej Soaps is Rs 59.82 crore divided into 5,98,28,780 equity shares of Rs 10 each. When the demerger comes into effect, the capital of Godrej Soaps will be reorganised to Rs 35.89 crore, divided into 5,98,28,780 shares of Rs 6 each. Additionally, the eligible shareholders of Godrej Soaps on a record date, to be finalised later, will be issued and allotted 5,98,28,780 shares of Rs 4 each in Godrej Consumer Products Ltd aggregating Rs 23.93 crore.

According to Godrej Soaps Ltd chairman Adi B Godrej, "this demerger will create a new company which will be focused on the FMCG sector and will enhance shareholder value. Godrej Consumer Products Ltd is expected to have ROCE and RONW ratios comparable with other strong FMCG companies in India."

Since the move is aimed at creating shareholder value, the company expects an appreciation in share price. "We would expect the share price to get better and see an improvement in the P/E ratio," said Godrej.

"We expect the consumer products business to report a healthy 25 per cent growth this fiscal, which is well above the industry average growth," said Godrej. The consumer products division reported a 17 per cent rise in turnover for the half year ended September 30, 2000.

The business which will remain with the residual company after the demerger include chemicals, medical diagnostics, estate and strategic investments. The name of the existing company post-demerger will change to "Godrej Industries Ltd".

An extra-ordinary general meeting of shareholders will be held to get the required approval. The demerger is subject to the approval of the High Court. The liabilities on stamp duty on account of the demerger is being assessed.

Godrej Soaps has reduced its debts from Rs 350 crore in the beginning of the current fiscal to Rs 250 crore as on date. Thus, even as the offer for sale of part of the company’s shareholding in Godrej Sara Lee has been deferred till market conditions improve, Godrej Soaps has already achieved the motive of reducing its debts.

Godrej Sara Lee was to come up with an IPO in November this year. Godrej Soaps, which holds a stake in the Godrej Sara Lee joint venture, had decided to dilute its shareholding to the public through this route.

According to Godrej, "we have already reduced our debts to Rs 250 crore as on today. These will further reduce at the end of the current fiscal."

The company has already received the acknowledgement card from SEBI approval to launch the IPO within one year. Godrej said that the company has kept its options open with regards to the IPO. However, it is highly unlikely that the company would not exercise this option, he said. Kotak Mahindra Capital Company is the book running lead managers to the issue.