Date:03/01/2008 URL: http://www.thehindubusinessline.com/2008/01/03/stories/2008010352641500.htm

Back No boost for Godrej from rights offer

Attractive pricing may hold key

BL Research Bureau

Godrej Consumer’s plans to raise Rs 400 crore through a rights offering may not provide any material support to the company’s stock price for now.

The offer is to part-finance the expansion of soap and chemical capacities and invest in a joint venture which makes paper-based hygiene products.

Payoffs from each of these expansions may take some time to materialise. While expansion in the chemical facilities at Baddi are expected to go onstream by March 2010, the soap unit may be commissioned in 12 months time.

Given that the company’s soap business has been subject to margin pressures and resistance to price increases in recent quarters, progress on the market share front, rather than investments in capex, may be the key event to be watched in this business.

The prepayment of debt, also to be financed through this offer may not have a material impact on Godrej’s financials as interest costs account for a very small proportion of earnings.

positive triggers

Under the circumstances, positive triggers for the stock may only arise from attractive pricing for the rights offer or from a significant overseas acquisition that is able to deliver quick payoffs.