Godrej Industries - At 60% discount to NAV vs average of 49% - ICICI Securities

Godrej Industries (GIL) generates major value from its listed subsidiaries and associates, viz. Godrej Consumer, Godrej Properties, and Godrej Agrovet. As per I-Sec target prices for Godrej Consumer, Godrej Properties and Godrej Agrovet and 50% holdco discount (in line with historical average), GIL's value works out to Rs501/share. At current market prices of the listed subsidiaries and associates, GIL's value works out to Rs497/share. The stock trades at a discount of 60% to combined market value of subsidiaries and associates. We believe Godrej industries is net beneficiary of removal of dividend distribution tax and rate GIL as BUY with a TP of Rs501. The standalone business (<10% of GIL's TP) reported revenue decline of 44%, YoY due to lockdown and delayed export orders.

- 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 the 100% subsidiary Godrej International.

- Standalone business reported muted performance: The standalone chemical business reported revenue decline of 44.1% YoY due to lockdown and delayed execution of orders. Exports declined 38.5%, YoY. EBITDA margin declined to -4.1% in Q1FY21 from 14.6% in Q1FY20. GIL reported net loss of Rs711mn.

- Beneficiary of removal of dividend distribution tax: With removal of dividend distribution tax (~20%), we expect GIL's dividend income should increase. We expect GCPL, GAVL and GPL to pay additional dividends with removal of dividend distribution tax. GIL is required to pay income taxes (@25.17%) on the dividends received. However, with accumulated losses, we do not expect any increase in taxes for next 2-3 years.

- Trading at discount of 60% to NAV: The stock is trading at a discount of 60% to the combined market valuation of its listed subsidiaries and associates. The average discount is ~49% since listing of Godrej Agrovet.

- Re-iterate BUY: We value GIL at Rs501 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 Rs497. At holding company discounts of 20%, 30% and 40%, GIL's value per share works out to Rs798, Rs697 and Rs597, respectively. Maintain BUY.

Shares of GODREJ INDUSTRIES LTD. was last trading in BSE at Rs.372.25 as compared to the previous close of Rs. 382.25. The total number of shares traded during the day was 4439 in over 314 trades.

The stock hit an intraday high of Rs. 387.05 and intraday low of 369.1. The net turnover during the day was Rs. 1676948.

Source : Equity Bulls

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