Godrej top gainer on acquisition news

Thu, 13 May 11:30 am

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The benchmark indices were seen holding on to their opening gains in the previous two hours of trade. Buying interest is seen across the board with stocks from the realty, auto and consumer durables sectors witnessing maximum interest. On the other hand, stocks from FMCG sector are trading subdued.

BSE-Sensex is trading up by 126 points while NSE-Nifty is trading 36 points above the dotted line. BSE-Midcap and BSE-Smallcap indices are both trading up by 1.1%. The rupee is trading at 45.03 to the US dollar.

As per a press release, Godrej Consumer Products (GCPL) has entered into an agreement to purchase the 51% stake of Sara Lee in its joint venture, Godrej Sara Lee Limited (GSLL). As per this agreement, GCPL will have to pay Euro 185 m or about Rs 10.5 b for this transaction. GSLL had Rs 9.7 bn in sales in FY10 and the net profit was Rs 1.3 bn for the same period. Hence the price translates to about 16 times earnings. With this acquisition, Godrej will own 100% state in the JV.

It may be recalled, Sara Lee is in the process of selling off its personal care business to concentrate on its foods business. However, as per the agreement, Godrej will continue to have the distribution rights for Sara Lee products till 2012. Beyond 2012, Godrej will have the option of either continuing with the distribution rights or selling them. Godrej is expected to raise money for this deal through equity dilution and private equity.

India's largest aluminum manufacturer Hindalco announced its FY10 results. The company's standalone top line grew by 7% YoY. This performance came on the back of increase in volumes and better product mix. However, the operating profit fell by 3% YoY. This was a result of lower aluminum prices and higher prices of raw material. The operating profits were also affected as a result of lower realization for by-products and lower fertilizer subsidiary. However, low-cost brownfield expansions and higher capacity utilizations helped support operating income. The company's net profits fell by 14% YoY as a result of lower operating income and lower other income. The fall in net profits could have been higher but for lower interest costs and lower tax expense. While the demand for aluminum is expected to be strong in the coming years, lower realisations as a result of marco-economic reasons are a concern.