10x in first 10 years and 10x in next 10 years
q Holding company with 45% M-cap CAGR since inception in 2001 driven by (1) 30% CAGR in consolidated earnings and (2) value unlocking after successfully incubating businesses
q In 2010-11, management envisaged another 10x growth by 2020. Trajectory seems to be on track, given 2011-13 profit growth at 27%
q Key strengths: Reputed management, strong brand, high growth consumption driven businesses, history of profitable monetization of new businesses (Godrej Sara Lee, Godrej Foods, Aadhaar, Godrej Hi-care, etc)
q Core business segments centre around urban and rural consumption – Consumer through Godrej Consumers (GCPL), Agriculture through Godrej Agrovet (GAVL), Real Estate through Godrej Properties (GPL), Chemicals in standalone entity, and urban retail through Nature’s Basket
Consolidated earnings to double over FY13-15E with RoE expanding to 18% (vs. 9% currently)
q GAVL’s (unlisted) 30% PAT CAGR to be driven by leadership in high growth animal feed business and better yields from maturing palm oil plantations (a restrictive monopoly). Temasek Holdings (PE fund) took 20% stake in GAVL in FY13 (valuing it at Rs 30 bn)
q GCPL to maintain 20% earnings CAGR led by focus on 3x3 strategy
q GPL’s earnings CAGR of 45% to be driven by faster execution and higher margin from new projects
Initiate coverage with BUY and FY15 SOTP-based TP of Rs 344 (post 20% holdco discount for listed entities)
q Our valuation is conservative as there should be no holdco discount (implies TP of Rs 402) given (1) strong corporate governance, (2) superior capital allocation, and (3) full pass through of dividend (from GCPL and Godrej Properties)
At CMP of 298, the stock trades at 23x FY14E EPS of Rs 13.1 and 15x FY15E EPS of Rs 19.8.
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