HLL announced last year that it was reviewing the businesses of dairy and animal feeds which are to be hived off. The mandate for managing the sale of the businesses was given to Jardine Fleming.

Sources said that while there are a number of players which have evinced keen interest in purchasing the business, Godrej Soaps is expected to put in a bid through its subsidiary company Godrej Agrovet which is involved in the business of animal feeds.

The animal feeds business of HLL grossed a turnover of Rs 278 crore for the calendar year 1998, while the turnover of the dairy business was Rs 79 crore. The contribution of the animal feeds business to HLL's total turnover of Rs 9,482 crore is less than three per cent.

HLL had said that its plansto divest the animal feeds business was subject to commercially attractive terms. Analysts peg the valuation of HLL's animal feeds business in the range of Rs 300-400 crore.

Godrej, when asked whether the company was interested in buying out HLL's animal feeds business, answered in the affirmative: "We would be looking at the option." Godrej did not rule out that fact that there would a number of parties in the race to acquire the business.

An HLL spokesperson said that the company was not in a hurry to sell the business and was waiting for the "right price" as these are profitable businesses.

Godrej Soaps holds 57 per cent in Godrej Agrovet, which is a dominant player in the animal feeds business and has a turnover of close to Rs 300 crore. Godrej Agrovet posted a turnover of Rs 241 crore turnover in 1997-98.

Agrovet has a market share of 11 per cent in animal feed in India. HLL is another player with almost the same market share. Other major players are cooperatives like Amul and Mehsana.

In theanimal feeds business, the cattle feed business has great potential for growth considering that consumption of compound feed is much less than 10 per cent of the actual potential.

The volume of the total compound feed production in animal feeds (cattle feed plus poultry) is 2.78 million tonne. The volume of the cattle feed is 1.8 million tonnes, and the balance is poultry feed.

Godrej's total volumes in animal feed increased to 3.3 lakh tonnes from 3.28 lakh tonnes in 1997-98. While poultry is a fairly new business for Godrej Agrovet, the company is also present in the aqua feed business which is large. However, the company's main activity is in cattle feed and poultry feed. Godrej recently forward integrated its business and diversified into processing and marketing chilled broilers under the brand of Godrej Real Good.

Insight

The sale of the animal feeds division by HLL and the subsequent purchase of the same by Godrej Agrovet, is a win-win situation for both the parties concerned. Especiallysince for HLL it would mean an inflow on nearly Rs 300 crore, which would further fuel the company's huge cash surplus. Now HLL has already categorically stated that these cash surpluses could be utilised for funding fresh acquisition, in a bid to eliminate competition and grow.

As for the purchase by Godrej Agrovet, this makes a lot of sense as the animal feeds business would mean a near doubling of the turnover for the company. However, there remains a questionmark over the availability of liquid funds with Godrej Soaps, for funding the acquisition.