Godrej Foods' decision to sell its stake in Godrej Pillsbury for an amount of Rs 31 crore is likely to improve the company's bottomline in future. The reason: Analysts expect the company to utilise the proceeds from the stake sell-off to reduce its interest burden. The board of directors had planned to pump in Rs 50 crore in the company for its revival. The scrip is currently trading at Rs 24.3 and expected to move northwards after the announcement of selling its stake sale. The scrip is currently on the roll. The scrip has fallen from Rs 32 level on September 2 to Rs 24.

To reduce the outstanding debt, the company is coming out with a Rs 18 crore rights issue in the ratio of 3:4 at a premium of Rs 5-8. Although the promoters had earlier planned to infuse rest of the sum themselves but they seem to have worked out a different route.

The company is selling its stake in Godrej Pillsbury to its group company Godrej & Boyce Mfg Co Ltd. This will help GodrejFoods as the joint venture was proving to be a drain on its bottomline as the company had to spend a lot on the launching and promotional expenses. Analysts expect the company might buy back the stake in a couple of years' time as the company's performance improves with pick-up in demand and firming of edible oil prices.

Due to a downtrend in the edible oils in the last couple of years, the company has been finding it difficult to service a large debt of Rs 116 crore. The poor demand coupled with high interest outgo led to shrinking of margins.

To improve its performance, the company is currently carrying out a restructuring excercise which involves cost cutting measures, improving efficiency, sale of non-performing units and better purchase management. The company is also planning to offer a VRS to around 168-126 workers and is also exploring the option of exiting from non-core areas of businesses like mineral water and squashes. Besides, it is expected to launch a number of products in the current year.In fiscal 1999, the company achieved some level of operational efficiency and saved around Rs 6 crore. As a result, the operating profit rose to Rs 12.13 crore for fiscal 1999 against an operating loss of Rs 5.9 crore for fiscal 1998.

For fiscal 1999, the company recorded a 62.45 per cent growth in sales to Rs 459.69 crore against Rs 282.97 crore in fiscal 1998. Although Godrej Foods recorded an operating profit of Rs 12.13 crore for fiscal 1999, an interest burden of Rs 19.37 crore proved to be the Achilles' feet for the company. As a result, the company incurred a net loss of Rs 10.81 crore. However, this is lower than the loss of Rs 17.88 crore incurred in 1998.

Hotel stocks likely to remain depressed

The recent study by an international hospitality consultancy spells more bad news for the hotel sector. The study has predicted a further fall in hotel tariffs and occupancy levels as a result of overcapacity and slowdown in the economy. This could lead to a further slide in the revenues andreduce profitability badly.

The fall in the occupancy levels coupled with declining room tariffs has already taken its toll on the performance of most of the hotel companies.

For the second year in running, the hotel companies reported a drop in revenue earnings and bottomline as well. The current financial year has been no exception and the first quarter performance has been far from satisfactory to signal any revival in the short term.

The recent study by the London-based, Hospitality Valuation Services said in its latest report that in 1999-2000, a marginal decline in average occupancy levels, coupled perhaps with a decline in average rates in all segments is in the offing. Further, capacity additions by way of new additional rooms is likely to put pressure on the tariffs and average hotel occupancy in many cities.

The recent rally in hotel stocks in the last week of August and first week of September has proved to be shortlived and most of the hotel stocks has taken a severe beating in the pastfew sessions. The study does not augurs well for the hotel stocks in the near future and these stocks are unlikely to witness any major uptrend. Stocks of hotel major, Indian Hotels, after rallying to Rs 570 has dropped back by Rs 130 to Rs 440. EIH Ltd has lost Rs 62 to Rs 238, Bharat Hotels has dropped to Rs 45 from Rs 58 and Hotel Leela from Rs 41 to Rs 31. A stable government at the centre coupled with an economic recovery would thus be the turning point for the hotel sector.