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Godrej Industries
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Analyst: Nikhil Vora (91-22-6638 3308; nikhilvora@sski.co.in) Suchit Sehgal (91-22-6638 3333; suchitsehgal@sski.co.in)
Rs174
UNRATED
Mkt. Cap: Rs50.8bn; US$1.1bn
We recently met Mr Adi B Godrej, the chairman of Godrej Industries (GIL), to get the latest update on the companys core business of chemicals and its investments and subsidiaries. While various business segments and subsidiaries (Godrej Agrovet, Godrej Consumer Products, Godrej Sera Lee, etc) promise robust growth, we believe the property development arm, Godrej Properties, offers attractive value creation potential. GPL currently has 20m sq. ft of area under development in and around Mumbai as also in Hyderabad, Bangalore and Kolkata for residential, commercial, IT and mall purposes. Based on our SOTP valuation, we arrived at a fair enterprise value of USD 1.3bn and per share value of Rs204 for GIL. In our valuations, we have not factored in a potential upside of development rights of Godrej & Boyce properties in Mumbai.
Corporate structure
Godrej Industres (GIL)
Subsidiaries
Goldmohur Foods and Feed (100%) Golden Feed Products (100%) Girikandra Holiday Homes & Resorts (100%) Godrej Waterside Properties (100%) Godrej Realty Pvt Ltd. (51%)
Joint Ventures
Associates
Swadeshi Detergents Ltd (41.1%) Godrej Upstream Ltd (40.43%) Compass Connections Ltd (20.74%) Pensonalitree Academy Ltd (26%) Creamline Dairy Products (26%) Creamline Nutrients Ltd (26%) Polychem Hygene Laboratories Ltd (26%)
Equity Investments
Godrej Consumer Products (10.9%)
Godrej Agrovet (57.7%) Godrej Properties (82.9%) Ensemble Holdings & Finance (100%) Godrej International (100%) Godrej Beverages & Godrej Global Solutions(48%) Foods (100%) Godrej Beverages & Godrej Hi Care (85.9%) Foods (48%) Godrej HiCare (85.9%)
Mid East (100%) Godrej Global Solutions (Cyprus) Ltd (100%) Godrej Global Solutions Inc (100%)
EV
18,000 15,000 40,000 2,942 189 6,000 36,135
% holding
20.00 57.69 82.88 100.00 100.00 48.00 10.90
GIL's share
3,600 8,654 33,152 2,942 189 2,880 3,975
EV/ share
12.33 29.64 113.53 10.08 0.65 9.86 13.61
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Godrej Consumer Products (GCPL) gaining meaningful proportions (11% holding by GIL)
GCPL is a major player in the Indian FMCG industry with a presence in toilet soaps, hair colour, liquid detergents and other toiletries. Second in toilet soaps business with a market share of 9.5% and a market leader in the rapidly growing hair colour market with a 42.2% share, GCPL is sitting pretty on a huge opportunity. While we like GCPLs willingness to scout for overseas inorganic growth opportunities (Rapidol), it is facing intense competition from international brands like LOreal in the fashion colour segment in the domestic market. GCPL reported a profit after tax of Rs1.21bn for FY06 and is expected to show a PAT of Rs1.5bn for FY07 a yoy growth of almost 25%.
Godrej Beverage and Food (GBFL) riding on growing consumerism (48% holding by GIL)
GIL has transferred its foods division (except for its Wadala factory in Mumbai) at a consideration of Rs700m to its 48% subsidiary Godrej Beverage and Food (previously Godrej Tea). GIL also purchased Nutrine during the course of the year for Rs.2.7bn to mark its entry into the Rs15bn chocolate and confectionaries market in India, which took the entire GBFL product portfolio to Tea, Confectionery, Soya Milk (Sofit) and Vegetable Oil (Sunshakti). GBFL reported a turnover of Rs4bn and a PAT of Rs300m in FY06. With increasing consumerism of packaged foods in India, we expect this business to show significant upscale in the coming period.
Assumptions
EV/ Sales 1x
EV
% holding
GIL Share
7,678
SSKI INDIA
Analyst
Pathik Gandotra Shirish Rane Nikhil Vora Ramnath S Nitin Agarwal Ganesh Duvvuri Varatharajan S Chirag Shah Bhoomika Nair Shiladitya Dasgupta Avishek Datta Bhushan Gajaria Shreyash Devalkar Hiren Dasani Ashish Shah Salil Desai Jayendran Rajappa Suchit Sehgal Uday Joshi Dharmendra Sahu
Sector/Industry/Coverage
Head of Research: Banking, Strategy Cement, Construction, Power FMCG, Media, Retailing, Mid Caps Automobiles, Auto ancillaries Pharmaceuticals IT Services, Telecom Oil & Gas, Engineering Textiles, Metals Construction, Power Mid Caps Oil & Gas, Engineering FMCG, Retailing, Media IT Services, Telecom Banking Automobiles, Auto ancillaries Cement Mid Caps Mid Caps Technical Analyst Database Manager
E-mail
pathik@sski.co.in shirish@sski.co.in nikhilvora@sski.co.in ramnaths@sski.co.in nitinagarwal@sski.co.in ganesh@sski.co.in varatharajan@sski.co.in chiragshah@sski.co.in bhoomika@sski.co.in shiladitya@sski.co.in avishek@sski.co.in bhushangajaria@sski.co.in shreyashdevalkar@sski.co.in hiren@sski.co.in ashishshah@sski.co.in salil@sski.co.in jayendran@sski.co.in suchitsehgal@sski.co.in udayjoshi@sski.co.in dharmendra@sski.co.in
Equity Sales/Dealing
Naishadh Paleja GV Alankara Vishal Purohit Nikhil Gholani Sanjay Panicker V Navin Roy Rohan Soares Rishi Kohli Pawan Sharma Dipesh Shah Manohar Wadhwa
Designation
CEO Head of Dealing VP - Sales VP - Sales VP - Sales AVP - Sales AVP Sales VP Derivatives AVP Derivatives AVP Derivatives AVP Derivatives
E-mail
naishadh@sski.co.in alankara@sski.co.in vishalp@sski.co.in nikhilgholani@sski.co.in sanjaypanicker@sski.co.in navin@sski.co.in rohan@sski.co.in rishikohli@sski.co.in pawansharma@sski.co.in dipeshshah@sski.co.in manohar@sski.co.in
Disclaimer
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Explanation of Ratings:
1. Outperformer: More than 10% to Index 2. Neutral: Within 0-10% to Index 3. Underperformer: Less than 10% to Index
Disclosure of interest: 1. SSKI and its affiliates have not received compensation from the company covered herein in the past twelve months for Issue Management, Capital Structure, Mergers & Acquisitions, Buyback of shares and Other corporate advisory services. 2. Affiliates of SSKI are currently not having any mandate from the subject company. 3. SSKI and its affiliates do not hold paid up capital of the company. 4. The Equity Analyst and his/her relatives/dependents hold no shares of the company covered as on the date of publication of research on the subject company. Copyright in this document vests exclusively with SSKI