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Published on 15/06/2019 10:21:10 AM | Source: Choice Broking Pvt Ltd

Update On Godrej Industries Ltd By Choice Broking

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Godrej Industries Ltd. (GIL) is one of the Godrej Group's holding companies. It has significant interests in consumer goods, real estate, agriculture and gourmet retail through the subsidiary and associate companies, across 18 countries. GIL’s chemicals division, ranks among India’s leading manufacturers of oleo chemicals and surfactants and the products are exported to over 80 countries in North and South America, Asia, Europe, Australia and Africa. Godrej Consumer Product Ltd. (GCPL) is an emerging market leader in home and personal care products, delighting consumers with innovative, superior quality products at affordable prices. Godrej Properties Ltd. (GPL) brings innovation and excellence to the real estate industry in India, delivering superior value through extraordinary and imaginative spaces created out of deep customer focus and insight. Godrej Agrovet Ltd. (GAL) is a diversified, research & development backed agri-business company, dedicated to addressing India’s key agricultural crises.

Company is trading at the TTM MCap/Sales multiple of 7.6(x) as compared to its peer’s TTM MCap/Sales average of 3.0(x). On the forward multiple, GIL is available at a Mcap/Sales multiple of 6.7(x) and 5.7(x) to its FY20E and FY21E earnings, respectively. Taking into account the strong group goodwill, existing market position and shift in consumer presence to non-toxic products, we assign a “BUY” rating to the stock with potential price of Rs 748.7 per share on SOTP valuation basis.

 

Investor Rationale

Strong Brand Name:

Godrej Industries Ltd and Associate Companies is a part of the Godrej Group. It comprises 4 major companies with interests in real estate, FMCG, agriculture and chemicals. Godrej is more than a hundred-year old brand in India, which is present across business segments. It has created a trust factor in the minds of many households and is one of the few brands in India, which is not associated with any particular product/category. There are very few other brands that enjoy a similar advantage. Each of the business units operates as a Strategic Business Units (SBUs) with each SBU responsible for its own profit & loss account. It operates under a separate CEO and team of professionals. The Godrej group’s various businesses depend on each other for either joint sourcing of raw materials and media, or the group businesses work as backward/forward integration for other businesses.

 

Market Leader in Oleo-Chemicals-

The chemical division is one of the leading manufacturers of basic oleo-chemicals, surfactants and derivatives of oleochemicals in India. It derives a significant portion of its revenue from exports (33% of its turnover). Over the past few years the company has been adding valueadded products which have helped it in expanding its product portfolio and dedisking the business. It currently produces 100 products which have application in 24 industries. The products are exported to around 80 countries in Asia, Europe, South & North America, Africa and Australia.

 

Various applications of products:

Oleo chemicals are industrially produced chemicals derived from animal fats or vegetable oils. Since oleo chemicals are less toxic as compared to conventional petrochemical products, various end use industries such as those engaged in manufacturing of personal care products, detergents, soaps and agrochemicals, are substituting their requirement for petrochemicals with oleo chemicals. Fatty Alcohols, in which the company is a leading producer, find its use in home and personal care industry. Fatty acids find its use in textiles, rubber, polymers, foods and feeds, and personal care products. Surfactants are used in industries ranging from home and personal care to polymers, oil fields and construction chemicals. Glycerine is used in a variety of applications including food and personal care products among others. Rising consumer spending on green products and increasing awareness regarding the harmful effects of chemicals used in cosmetic products has resulted in an upsurge in preference for oleo chemicals.

 

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