Over the past many months we have been recommending Godrej Inds at 185-200 levels as well as had many trading positions in it in this range of 185-240.
But lets look at a little longer time horizon on the stock and possible reasons for buying the stock with a 1-2 yrs or even 5 years view. The major comfort comes in the fact that management is reliable and has good track record.
Now lets look at some more details
Godrej Inds – Market Cap – 6100 crores
Holding Value
1) Godrej Consumer Products – 21.6% holding is worth around 2900 crores
2) Godrej Properties – 70.6% holding is worth around 3200 crores
So thats give a holding value of around 6100 crores.
Now lets look at other major businesses
Godrej Inds – Chemicals business – Does sales of around 1000 crores.
Godrej Agrovet – Does sales of 1900 crores.
Apart from that there are many other business like Animal Feed, Godrej Tyson Foods, Palm Oil and other Agri products, Godrej Seeds & Genetics Limited.
Apart from this the company- Godrej Inds has a share of 40% in the profits for development of Vikhroli property. They may also have more development of Godrej & Boyce properties all over India.
So if i were to take a rough valuation.
Holding Value Discount – 2500-3000 crores.
Other companies do almost 3000-4000 crores of sales and the real estate development we can give it a valuation of price to sales of 1 ( this is my way m bad at fundamentals neways but a rough approximation )
So at current market cap of 6000-6100 crores i believe downside could be limited to 10-15% but upsides could be easily a double over the next 3 years.
An investor with a long term view should have this stock in the portfolio as its a mix of safety as well as participation in growth with so many verticals.
The above analysis is a quick take and a personal view – Please do your own research.
Disclosure: Have long term investments in the stock as well as we keep trading the stock for small spurts to reduce the holding average.
Happy Investing,
Nooresh
November 17, 2011
Interesting idea Nooresh. Do you know of anyone who’s done a detailed evaluation on this? Don’t know from where I got this link (too many tabs), but, Rahul Saraogi of Atyant Capital also discussed this in his current Valuex conference – https://www.gurufocus.com/news_print.php?id=138851
This is just their cliffnotes version so not very clear to me. Is he essentially saying that from a MarginOfSafety POV rest of business worth $1770M, we are getting for free?
November 17, 2011
Hi Suhail,
I think the valuation in above post and the other article clearly gives the merits of investing for long term in this company.
One needs to keep accumulating the stock at lower levels slowly.
I would expect 160-200 as a good buying zone.
November 18, 2011
Thanks Nooresh for suggesting the price range. I very well got the idea of stock. But my specific Qn still remains unanswered. Are you and that Atyant link, essentially saying that at CMP investors are getting $1700+ million of all that other business for free? Is the margin of safety that wide? And one more thing, being a holding company what is the value unlocking you see that can re-rate this stock? ie: why would mkt rate it any different than other defensive FMCG stks like HUL/Nestle etc.
This might be old-hat to you, but I’m relatively new – so pls dont mind if that was a dumbo question. Thanks again.
November 20, 2011
Hi Suhail ,
Couple of things.
I would not consider it to be a holding company.
The current businesses which are subsidiaries and its core business of oleo chemicals do around 3000-4000 crores of sales and is expected to grow in a good manner.
The other holdings like godrej consumer and properties are good sound businesses. But at the same time Godrej Inds will also keep getting some sort of direct profits from land development.
In previous years it was Godrej Soaps from which it kept on doing value unlocking. This was very rewarding for shareholders. So moment there is some value unlocking again the stock can get re-rated. Godrej Agrovet and other palm oil business etc are really interesting.
The holding value gives a comfort in terms of donwside as we can take around 30-50% haircut. So what i expect is the stock may have limited downsides because of its holdings and good upside because of its businesses 🙂
So if i can see 10-15% downside risks from 180-190 levels and upsides of 50-100% over the next 3 years it does make enough sense.
November 20, 2011
Thanks for that holding company explanation. It’s great to see even more positive points coming out of the discussion. Best part about this value idea is mgmt quality which is always welcome. Will track and enter at appropriate time. Thanks for the discussion and answering queries.
November 21, 2011
Yes mgmt quality is very important to take a longer term call and i would trust the godrej group.
Lets hope the stock outperforms over the next 1-3 years or even more.