Godrej Industries (GIL), whose market cap has compounded at a 34% CAGR since the spin-off of its soaps business in 2001, is well placed for rapid earnings growth, given its presence in growing sectors with vast addressable opportunities, and the Godrej group’s proven execution capabilities.
Our sum-of-the-parts (SOTP) analysis suggests valuations too are attractive: the implied valuation of GIL’s unlisted portfolio, chiefly comprising Godrej Agrovet (GAVL), is now near-zero and near its lowest since the listing of Godrej Properties (GPL) in 2010.
Initiate with BUY and an SOTP-based Sept-17 TP of R505. GAVL, which GIL plans to take public eventually, is an attractive investment opportunity predicated on the theme of long-term growth in Indian agriculture.
GIL’s 23.8% stake in Godrej Consumer Products (GCPL) currently contributes c.70% to GIL’s overall valuation. GCPL’s market cap has registered a 40% CAGR since its listing in 2002, driving GIL’s valuation. GCPL’s growth should continue, driven by strong brands and international expansion.
We expect long-term upside in GIL’s share price to be driven by strong earnings growth across its key businesses accompanied by possible value unlocking in GAVL through an IPO.