Lalit Modi’s son Ruchir Modi, who is on board of Godfrey PhillipsBSE 4.59 % India (GPI), said his father is in talks with international companies to sell the marketing and distribution divisions of GPI, India’s second-largest cigarette maker.
The Modi family owns 46.96% in GPI while Philip Morris control 25.1%, as per latest disclosure to the stock exchanges ending last December.
“Credit Suisse has the mandate to do the deal which is still on the table,” Ruchir Modi told ETover phone, adding that the company has held talks with Philip Morris and Japan Tobacco in the past. Modi junior, who finished his education in the UK, was inducted onto the GPI board last year and actively involved in other group companies including Modicare and convenience stores 24/7.
Lalit Modi is in exile in the UK. Modi junior said the GPI board has mandated Lalit Modi to spearhead the GPI deal with Credit Suisse as the investment bank. Modi said Indian law doesn’t permit FDI in manufacturing of cigarettes but permits them to market and distribution cigarettes.
GPI plans to separate marketing/distribution from manufacturing to comply with the norms. If any deal goes through, it would effectively make the Modi group contract manufacturers for the company that buys the marketing and distribution arm of GPI, he said.
This is the first time a board member of GPI has confirmed that the company is looking to sell some operation to overseas investors. Speculation has been rife for over a year that the promoter family was looking to sell stake in GPI. GPI has a license agreement with Philip Morris to manufacture and market Marlboro cigarettes in India.
As per estimates, ITCBSE 0.48 % Ltd led the Indian cigarette market with a retail volume share of around 78-80%, followed by GPI with 10-12%. GPI’s leading brands include Four Square, Red & White and Cavenders.
AEuromonitor report said GPI has a marked presence in the economy and mid-priced segments while ITC is dominant across all price segments. The report says cigarettes continued to be dominated by Indian companies with the leading manufacturers accounting for a volume share of almost 98% in 2015.
In the last few years, the Indian government has been raising taxes on cigarettes to curb consumption, shrinking the market, while overall tobacco consumption continues to grow as consumers shift to cheaper forms or smuggled or tax-evaded cigarettes. Indian companies cannot add capacities. India banned foreign investment in cigarette manufacturing in 2010.
However, there is no bar to invest through technology collaboration and licensing agreements and allowed forming trading companies. However, the government may consider stopping it altogether or further tightening the screws.
Source: Economic Times