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At 55% discount to NAV vs average of 50%

Godrej Industries (GIL) generates major value from its listed subsidiaries and associates viz. Godrej Consumer, Godrej Properties and Godrej Agrovet. As per ISec target prices for Godrej Consumer, Godrej Properties and Godrej Agrovet and 40% holdco discount, GIL’s value works out to Rs623/share. At current market prices of the listed subsidiaries and associates, GIL’s value works out to Rs665/share. The stock trades at a discount of 55% to combined market value of subsidiaries and associates. We believe the subsidiaries as well as associates of Godrej Industries to be net beneficiaries of revival in economy. We also expect these businesses to benefit with value migration from unorganized to organised sector. We value GIL as per SOTP method at TP of Rs623 (Earlier TP-Rs519). Considering 62% stock price performance over past six months, we downgrade the stock to ADD. Standalone business (<10% of GIL’s TP) reported revenue growth of 17.5%, YoY but incurred a loss of Rs415mn in Q4FY21 compared to net profit of Rs18mn in Q4FY20.

Godrej Industries (GIL) – a holding company:

GIL derives major value from its listed subsidiaries and associates, viz. Godrej Consumer, Godrej Properties and Godrej Agrovet. Apart from these companies, GIL is also running its oleo-chemical business (standalone operations). The palm oil trading business is housed under its 100% subsidiary Godrej International.

Standalone business reported muted performance:

The standalone chemical business reported revenue growth of 17.5% YoY. There is sequential recovery in business with re-opening up of the economy. EBITDA margin declined to 4.4% in Q4FY21 from 12.6% in Q4FY20. GIL reported loss of Rs415mn vs profit of Rs18mn in Q4FY20.

Trading at discount of 55% to NAV:

The stock is trading at a holding company discount of 55% to the combined market valuation of its listed subsidiaries and associates. The average discount is ~50% since the listing of Godrej Agrovet.

Downgrade to ADD:

We value GIL at Rs623 as per the SoTP methodology and ISec target prices for GIL’s listed subsidiaries and associates, viz. Godrej Consumer, Godrej Properties, and Godrej Agrovet. At current market prices of the listed subsidiaries and associates, GIL’s value per share works out to Rs665. At holding company discounts of 20%, 30% and 50%, GIL’s value per share works out to Rs917, Rs791 and Rs538, respectively. With 62% stock price performance over past six months, we downgrade the stock to ADD.

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