KK Modi eyes 51% in Godfrey Phillips
The KK Modi group is set to wrest majority control in cigarette maker Godfrey Phillips India (GPI) from American tobacco major Philip Morris as the Indian business house leads the company's charge into noncigarette segments such as beedi and chewing pan masala , potentially to the discomfort of the foreign partner.
GPI, a Rs 3,000-crore publicly-listed company, is a joint venture between the Modis and Philip Morris who each held 36% stake originally. However, changing equations, and the new diversification plans-led by the Indian promoter-saw the Modis pick up an additional 11% stake from the foreign partner last year, taking up their holding to 47%.
Modi, chairman of Modi group, told TOI that as per an agreement between the partners, he has the "right" to take up his holding to 51% by buying further into Philip Morris' holding to get a majority control of the company, India's second-biggest cigarette maker that sells the "Four Square" brand and also distributes the iconic Marlboro brand (from Philip Morris stable).
This would bring down the stake of Philip Morris to 21%. Modi said the market was currently "too hot" for buying the additional stake from Philip Morris. "Whenever the market will come down, we will buy. We have the freedom and the agreement to go to 51% and they have agreed." The scrip of GPI closed at Rs 2,370 on the Bombay Stock Exchange , down 1.3%. Modi said the idea is to give one promoter management control to freely manage operations. "There was a great (deal of) uncertainty, even though by agreement we had the management control. But by shareholding , we were sharing the management control with Philip Morris. So, Philip Morris agreed that it is better for one person to control, because now we are diversifying into many areas like beedis and chewing tobacco... which are not their forte."
Sources, however, said the American tobacco major was not very comfortable with Modi's plans to diversify in noncigarette businesses. However , it had to give in considering the strength and experience of the Indian partner and its reach in the market. Philip Morris officials did not comment on the story despite several attempts.
Modi said his group will invest over Rs 2,000 crore in the coming years for expansion, and a majority of this will be pumped into GPI to fund its diversification plans as well as for a new factory in Mumbai. The cigarette business was not enough to sustain his group's vision of achieving a 30% growth in revenues and margins every year, he said. "The cigarette business is not growing at that rate. To achieve 30% growth, we cannot go with cigarette alone." While Modi's sons Lalit (the former IPL commissioner ) and Samir are on the company's board, his granddaughter Priyal (his daugther Charu's daughter) is helping him with the beedi business.
The company's beedi business is under the brand "Sona" while in chewing pan masala , it has the brand "Pan Vilas" which was launched early last year in some markets of the country. Modi said the agreement with Philip Morris also stipulates that if and when he decides to sell his holding, the American company will have the first right to buy it. "Only if they cannot buy will we have the right to sell it to someone else."
The KK Modi group is set to wrest majority control in cigarette maker Godfrey Phillips India (GPI) from American tobacco major Philip Morris as the Indian business house leads the company's charge into noncigarette segments such as beedi and chewing pan masala , potentially to the discomfort of the foreign partner.
GPI, a Rs 3,000-crore publicly-listed company, is a joint venture between the Modis and Philip Morris who each held 36% stake originally. However, changing equations, and the new diversification plans-led by the Indian promoter-saw the Modis pick up an additional 11% stake from the foreign partner last year, taking up their holding to 47%.
Modi, chairman of Modi group, told TOI that as per an agreement between the partners, he has the "right" to take up his holding to 51% by buying further into Philip Morris' holding to get a majority control of the company, India's second-biggest cigarette maker that sells the "Four Square" brand and also distributes the iconic Marlboro brand (from Philip Morris stable).
This would bring down the stake of Philip Morris to 21%. Modi said the market was currently "too hot" for buying the additional stake from Philip Morris. "Whenever the market will come down, we will buy. We have the freedom and the agreement to go to 51% and they have agreed." The scrip of GPI closed at Rs 2,370 on the Bombay Stock Exchange , down 1.3%. Modi said the idea is to give one promoter management control to freely manage operations. "There was a great (deal of) uncertainty, even though by agreement we had the management control. But by shareholding , we were sharing the management control with Philip Morris. So, Philip Morris agreed that it is better for one person to control, because now we are diversifying into many areas like beedis and chewing tobacco... which are not their forte."
Sources, however, said the American tobacco major was not very comfortable with Modi's plans to diversify in noncigarette businesses. However , it had to give in considering the strength and experience of the Indian partner and its reach in the market. Philip Morris officials did not comment on the story despite several attempts.
Modi said his group will invest over Rs 2,000 crore in the coming years for expansion, and a majority of this will be pumped into GPI to fund its diversification plans as well as for a new factory in Mumbai. The cigarette business was not enough to sustain his group's vision of achieving a 30% growth in revenues and margins every year, he said. "The cigarette business is not growing at that rate. To achieve 30% growth, we cannot go with cigarette alone." While Modi's sons Lalit (the former IPL commissioner ) and Samir are on the company's board, his granddaughter Priyal (his daugther Charu's daughter) is helping him with the beedi business.
The company's beedi business is under the brand "Sona" while in chewing pan masala , it has the brand "Pan Vilas" which was launched early last year in some markets of the country. Modi said the agreement with Philip Morris also stipulates that if and when he decides to sell his holding, the American company will have the first right to buy it. "Only if they cannot buy will we have the right to sell it to someone else."
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