Growth will mainly come through subsidiaries

Updated: Oct 30 2005, 05:40am hrs
Godrej Industries Limited (GIL) is the holding company for the Godrej group. Godrej Agrovet and Godrej Properties, two of its main subsidiaries are expected to drive growth for GIL in future. Adi Godrej, Chairman spoke to Pravin Palande of the Financial Express. Excerpts:

Why is your operating profit margin falling successively For the FY 05 it is 16.5% and now it has come down to around 13%. What is the reason

You have to understand here that part of our business is to get yields from various other group companies. That varies from quarter to quarter. Since Godrej Industries is basically an operating as well as a holding company and holds stakes in various group companies, our returns are dependent on the performance of other companies. Dividends don't come every quarter and so our total income does not reflect the right picture on a quarterly basis. You also get income based on sale of investments or assets in other companies. Over the year, GIL will surely be able to maintain its margins which are on the lower side for this half.

For GIL, the QII results for this year show that operating profit were up by 22% and for the half yearly the same figure works out to 55% Is this seasonal

It is not seasonal. Last year we had a poor first quarter. This year both our quarters have been good. The PBDIT before exceptional items is also up by 28%.

Why is your profit from investment lower for this quarter as compared to the previous year at Rs 10 crore

Last year we sold some of our shareholding in Godrej Sara Lee to a sister concern. So the income for that particular period was high. But that is the exceptional item.

Can you tell us about your investment in Godrej Consumer Products

Like I said before, GIL holds stakes in various group companies. We hold 13% in Godrej Consumer Products Ltd (GCPL), which is absolutely on a high growth curve. This 13% accounts for Rs 337 crore in terms of market capitalisation of GCPL. GIL has a market capitalisation of Rs 1,117 crore. The market valuation of this company has moved up by about 100% in the last one year. This has benefited GIL to a very large extent. Irrespective of the value that GCPL is providing us, it is not reflected in the book value of GIL. You also have to note the fact that GCPL has a return on capital employed that exceeds 100%. It says a lot about the wealth that the company is creating for its shareholders.

What is the market share of Godrej Industries for processed foods

We are basically in tetra pack fruit drinks, soya milk and we also make processed foods for other companies. In the fruit drink business, we have a market share of about 10%, in soya milk it stands at about 60%. But this is relatively a small business for us. GIL's portfolio comprises two major subsidiaries of which one is Godrej Agrovet where we hold 57.78% in the company. It is a Rs 1000 crore company along with its subsidiaries and is mainly involved in animal feeds, agri inputs, oil palm plantations, processed chicken and a major growth area for the company is rural retail. We have rural supermarkets by the name of Adhar and we expect this area to expand very rapidly. This will be a much faster growing part of our business than processed foods. The other important subsidiary of GIL is Godrej Properties where we hold 83% of the company and where the business is growing at a very rapid rate. The major future growth areas for GIL are its two subsidiaries and not just processed food alone.

The chemical business is not growing. This is evident from both the quarterly as well as the half yearly figures. Your comment.

I think it is growing at a reasonable rate of around 11% and we are happy with it. We are the market leaders in this segment and because of our higher base, the growth rate is low. For the current half the business stood at Rs 262 crore.

In terms of investments, what are the areas that you want to concentrate on for the future

We will be investing in our chemical business. Investment in finance and BPO will go up. But the big growth for GIL will come through its subsidiary companies mainly Godrej Agrovet and Godrej Properties. But GIL will not invest into these companies. These companies will grow through their own internal accruals. The benefits of that will come to GIL as a major shareholder. We will buy more shares into GCPL.

Is GIL doing business with GCPL

No. Though GIL is in the business of manufacturing fatty acids and GCPL, being in manufacturing of soaps uses this product, we hardly deal with each other. GCPL have their own unit for manufacturing fatty acids.