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At 63% 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 50% holdco discount, GIL’s value works out to Rs672/share. At current market prices of the listed subsidiaries and associates, GIL’s value works out to Rs815/share. The stock trades at a discount of 63% 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 Rs672 (Earlier TP-Rs654). We downgrade the stock to ADD rating. Standalone business (<10% of GIL’s TP) reported revenue growth of 65.5% YoY and PAT of Rs566mn in Q2FY22 up 46.8% YoY from Rs386mn in Q2FY21.

* 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 healthy revenue growth: The standalone chemical business reported revenue growth of 65.5% YoY. There is sequential recovery in business with re-opening up of the economy. EBITDA margin declined to 16.9% in Q2FY22 from 17.9% in Q2FY21. GIL reported PAT of Rs566mn vs Rs386mn in Q2FY21.

Investment in Godrej Capital: The company acquired 85.3% stake in Godrej Capital for Rs6620mn during the quarter.

Trading at discount of 63% to NAV: The stock is trading at a holding company discount of 63% 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 Rs672 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 Rs815. At holding company discounts of 20%, 30% and 40%, GIL’s value per share works out to Rs1,348, Rs1,171 and Rs993, respectively. We downgrade the stock to ADD rating.

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