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Godrej in talks to pick up a big chunk in Jyothy Labs

12-August-2005
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Godrej in talks to pick up a big chunk in Jyothy Labs

Godrej Consumer Products Limited (GCPL) is in talks to acquire a substantial equity stake in the fast-growing FMCG firm, Jyothy Labs. Jyothy, which owns popular brands like Jeeva Ayurvedic soap, Ujala Supreme whitener, EXO dish cleaners, Speed detergent and Maxo mosquito coils, is a closely-held southern firm promoted by MP Ramachandran, current chairman and MD of the company.

While Godrej is keen on taking a foothold in the company, Mr Ramachandran and other promoter-shareholders are yet to take a final call on the matter. Sources said that groups are also exploring possible marketing tie-ups in some other products like the branded tea sold by Godrej.

“Discussions have happened off and on in the recent past. No agreement has been reached. Jyothy is a strong FMCG player, and the rising stock market will make the company even more demanding for any sellout,” said a source familiar with the development. Private equity player Actis, formerly CDC, and Credit Lyonnais Securities Asia, together, own a minority stake in Jyothy.

The combined investment was Rs 100 crore. At one point, Jyothy had examined the option of listing its shares; however, the IPO plan was later put on hold. “The promoters are conservative and may retain their presence in the management even if the proposed deal with Godrej materialises.”

Significantly, the shares of Godrej group flagship, Godrej Consumer Products, have moved up lately, on the back of speculation that the company is close to announcing a major acquisition. Analysts feel that one of the companies that may figure is Jyothy.

Since August 1, the scrip rose from Rs 398 to almost Rs 482.5 in the last seven days. GCPL has been aggressively exploring viable inorganic and organic growth opportunities to deploy the cash generated by its business and accelerate growth. GCPL had reported a 57% jump in net profit to Rs 27.1 crore for the quarter ended June '05 with a 23% jump in sales at Rs 167.7 crore.

Informed sources said that the company is also very keen to get into the detergents market. When contacted, Adi Godrej, chairman of GCPL, refrained from offering any comments. “I do not want to comment on any speculation,” he said. MP Ramachandran, Jyothy Lab's MD, was unavailable for comment. Jyothy Labs has grown successfully to become one of the premier rural distributors in India, with key brands.

GCPL has been on the look out for new growth avenues, in addition to existing businesses like toilet soaps, hair colours and fabric softeners. The company is vulnerable to the challenging business environment for FMCGs, despite a good showing from some of its brands, say analysts.

Toilet soaps, the largest revenue-driver for the company, with strong brands like Godrej No 1, Cinthol and Fairglow, while Godrej hair dye and Colorsoft range of hair colours are some of its other fast-moving products.

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