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At 66% discount to NAV vs average 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 Rs628/share. At current market prices of listed subsidiaries and associates, GIL’s value works out to Rs601/share. The stock trades at a discount of 66% to combined market value of subsidiaries and associates. We expect subsidiaries as well as associates of Godrej Industries to be the net beneficiaries of revival in economy. We also expect these businesses to benefit with value migration from unorganised to organised sector. We value GIL as per SoTP methodology at TP of Rs628. We maintain BUY rating on the stock. Standalone business (<12% of GIL’s TP) reported revenue growth of 22.7% YoY and PAT was Rs784mn in Q3FY23 (vs 233mn in Q3FY22). Prolonged losses (if any) of Godrej Capital may result in higher holding company discount.

* 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 22.7% YoY. Gross and EBITDA margin expanded 490bps and 240bps, respectively YoY due to lower commodity prices. GIL reported PAT of Rs784mn in Q3FY23 vs Rs233mn in Q3FY22.

* Investment in Godrej Capital: GIL has increased its investment in Godrej Capital to 91.8% stake for a total consideration of Rs14,940mn. We believe prolonged losses (if any) of Godrej Capital may result in likely higher holding company discount.

* Trading at a discount of 67% to NAV: The stock is trading at a holding company discount of 67% to the combined market valuation of its listed subsidiaries and associates. The average discount is ~50% since the listing of Godrej Agrovet.

* Maintain BUY: We value GIL at Rs628 as per the SoTP methodology and I-Sec 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 Rs601. At holding company discounts of 20%, 30% and 40%, GIL’s value per share works out to Rs988, Rs859 and Rs730, respectively. We maintain BUY rating on the stock.

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