Godrej Consumer could lower domestic debt with Kiwi compensation

Godrej Consumer could lower domestic debt with Kiwi compensation

Godrej Consumer Products Ltd has got a substantial compensation to stop selling Kiwi in India. When Sara Lee Corp. divested several of its businesses globally, the Kiwi and Ambi Pur brands, too, were transferred. Sara Lee had sold its 51% stake in Godrej Household Products Ltd (GHPL, then known as Godrej Sara Lee Ltd), which houses its home care business, to Godrej Consumer. Godrej Household is a 100% subsidiary of Godrej Consumer Products Ltd.

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Last week, Godrej Consumer announced it has surrendered the licence to sell Kiwi and Kleen shoe care brands, and was compensated Rs177 crore. In fiscal 2010, GHPL’s shoe care business contributed barely 2% to its Rs942 crore sales, while the air care business contributed about 4%. So, Godrej Consumer has got a substantial sum for surrendering this brand.

Earlier, when Sara Lee sold its 51% stake to Godrej Consumer, it withdrew the Ambi Pur licence and Godrej Consumer was compensated for it. Though not disclosed, that amount would have been substantial, as this category was twice the size of the shoe care business. The cash flows from surrendering these licences could be used to lower debt. The firm had about Rs250 crore of rupee-denominated debt, which had been refinanced at a cost of about 9.5-10%. It also has overseas debt of about $350 million, or about Rs1,600 crore, which is set at Libor plus 150-175 basis points. Libor is the London interbank offered rate. One basis point is one-hundredth of a percentage point.

The Godrej Consumer stock has outperformed its peers. Its domestic soaps business had come under pressure from rising raw material costs and competition. The company expects the March quarter results to be better, after recovering in the December quarter, as price hikes in soaps will help sales growth and protect margins from rising material costs. Its home care business, which contributes about 40% to domestic sales, will not be materially affected by these brand divestments. Its main business of household insecticides—80% of sales in fiscal 2010—grew by about 24% in the December quarter. It also plans to launch its own air care product to replace Ambi Pur. Its international business continues to be boosted by the effect of acquisitions. Its share closed the week at Rs358, not reacting to the development.

Graphic by Yogesh Kumar/Mint

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