Sunday, 16 November 2014

Godrej Industries Ltd-This Godrej is Fresh like Cinthol

This is another gem from the house of Godrej but is not understood much by market like it does for Godrej Consumer products and Godrej Properties. It is the holding company of Godrej Properties with 60% shareholding and it also holds around 23% shares of Godrej Consumer products.

But its real gem is Godrej Agrovet ltd which is investing big in agriculture related businesses. GIL’s standalone business is chemical which deals primarily in Oleo chemicals like fatty acids, fatty alcohol, Glycerin and surfactants . These are chemicals derived from plant and animal fats. GIL was the first in india to launch animal fat free soap in india in 1918, we know it by the name of Cinthol launched in 1952. It is also holding prime land of 34 acre in area around its registered office in Vikhroli, Mumbai , which it is developing with Godrej Properties  and its share of profit will be 40% (actually it will get around 76%, as it is holding 60% in Godrej Properties also) .

Godrej Group as a whole holds huge land parcels in Vikhroli, which houses the fctories of the group manufacturing everything from soaps, chemicals, locks and furniture etc. No body knows how much land there is owned by Godrej group but estimates are for 2500-8000 acres of lands and this is real big. Even their chairman, Mr Adi Godrej states that unless political and regulatory issues are solved they can't number a figure. However they plan to develop some 1500 acres . As per some old estimates, this land is valued around 70000-90000 cr and on the same lines,  value of 34 acre land is around 1500 crores (although after development it will bring in much more to GIL).

Now we come to main course and it is Godrej Agrovet. It is india’s biggest Animal feed company with around 25% market share. It has recently opened a shrimp and fish feed plant in AP (remember our old horse Avanti feeds dealing in the same business). This business is growing very fast  and clocked around 2500 crores last year…this year I feel it will be around 3200 crore. Animal feed is going to be one of big business opportunity in india as demand for dairy and animal protein is rising very fast in india but production techniques are still old. Dairy production per cattle is almost six times in USA of india. Same is the case with fish feed which is yet to grow in india although poultry feed business is fairly developed but demand is outpacing supply very fast. This one business will add huge value to the company.

Godrej agrovet is also india’s largest producer of Palm oil with around 35000 acre palm oil plantations in india meeting vegetable oil demand of india. India is facing severe shortage of the vegetable oil and imports around 50000 crore worth of food oil. Oil palm contributed around 450 cr revenue last year but this year it will be around 600 cr business and one of the fastest growing.

GIL is betting big on farm inputs and seeds business which brings in revenues of around 450 cr…this year it will touch around 600 crores.  It deals in herbicides, plant growth simulaters, micronutrients, soil conditioners and is a reputed name in this line of business. It has divested its agri seeds units into Godrej Seeds & Genetics Limited. It will serve as its vehicle for entering the hybrid seed business in India. Godrej Seeds & Genetics Limited will focus its efforts on three major field crops-maize, paddy, and bajra. It has clocked turnover of 45 crore last year but this year it will be around 80 crores.

It is also having another businesses like fish feed JV with ACI in Bangladesh, Godrej Tyson foods for chicken processing, Nature Basket is the retail arm of the group. Godrej Tyson foods has made some inroads in making Indians aware of the branded chicken who likes to buy their chicken alive. But quality here is a big problem in india where due to no restrictions poultry farmers are feeding huge amounts of antibiotics and growth stimulators to their chickens in farms to raise the productivity but it is very dangerous for human body. So sooner we are going to see another revolution in Indian poultry industry of branded chicken and egg products. Venky’s india is another leading name in this race. Godrej Tyson foods has so far introduced Yummiez  and Real Good chicken brands in india and has received encouraging response so far. Tyson foods is the largest meat processer of USA. Turnover of the JV is around 400 cr and if focused properly can be one of the biggest surprise and success story due to in house capabilities in the fields of poultry feed.
Its retail arm nature’s basket is having 32 stores in big Indian metro cities with turnover around 200 crores. I am always skeptical of producers, Brand owners venturing into retail business…it is not their cup of tea. First of all Local Baniya is very hard to compete and then to understand and establish a retail model for Indian market where real estate is hugely overvalued is still a distant dream for Indian retailers.  If ever Online retail is going to beat offline retail in india in commercial terms, then costly real estate is going to play huge role.
Indian real estate is overvalued mainly due to presence of around 40% black money…real estate in india is a parking facility for black money. So I can’t say much about its retail business but I think it will be good if it exist it and invest that money in its domain of expertise.
In 2012, GIL sold 20% stake on Godrej agrovet to Singapore government-owned investment firm Temasek Holdings for 572 crores valuing it around 3000 crores and it should be valued around 5000 crore now.
Moreover GIL is looking to list Godrej Agrovet within one or two years. This will bring huge value to the company like it did when group listed Godrej Properties.
Godrej consumer products’ market value is around 33000 crores and GIL’s stake of 23% is valued around 7500 crores and its 60% stake in Godrej Properties is valued around 3000 crores which values both for around 10500 crores and after giving it 30% discount the same will be valued around 7500 crores. Now add around minimum of 2500 crores for 34 acre land in vikhroli and it will add into 10000 crore which equals the market value of GIL at current market price of 300/-
That means we are getting Godrej Agrovet free of cost, which itself is on a strong growth trajectory and with the huge growth even in Godrej Consumer products and Godrej Properties the value equation for GIL is only going to heading towards sky.
A great buy at CMP of 300/-
(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)