Godrej Industries looking attractive. Holding company discount may be overdone.

Godrej Industries (GI) is one of the holding Company of Godrej group. Besides, it’s also a leading manufacturer of oleochemicals on standalone basis.

However, for all practical purposes, it should be mainly looked at as a holding Company – numbers of it’s standalone business are not much exciting. It also borrows to fund various group endeavours and hence has high borrowings (Rs 4,447 crore debt against a net worth of Rs 1,527 crore as on March 31, 2021).

GI’s stake in various well-know group outfits

  • Godrej Consumer Products (GCPL) : 47.29%, > Rs 25,000 crore
  • Godrej Properties (GPL): 23.75%, > Rs 30,000 crore
  • Godrej Agrovet (GAL): 62.48%, > Rs 7500 crore

The Company has been an under performer since July 2017 when it reached a high of Rs 680/ share. Since then, it first declined to Rs 250/ share in May 2020 and is currently trading at Rs 565/ share.

The stock seems to be setting up nicely for a potential upmove.

Reasons –

  • GI’s current market cap is Rs 19,000 crore and it’s stake in key group companies is currently worth more than Rs 62,500 crore. This implies a discount of almost 70%.
  • GI is still 17% lower to it’s all time highs of 2017. Compared to this, GCPL during the same period has increased by 75%, GPL by 357% and GAL by 5%. The holding company discount seems to be overdone.
  • Reasons for underperformance are difficult to pinpoint. Holding companies typically have these phases of over and under performance – their shareholding being tightly under the control of the promoter. Even in the case of GI, public float is just 6.5%. Promoters own 80.6% and balance 12.9% by the institutions. Little float can result in significant movements in short periods of time.
  • Technically also, the stock after breaking out of the declining trend line in June 2020, seems to be tightly consolidating with intermittent significant upmoves on high volumes – indicating accumulation.

It’s surely an interesting stock to keep an eye on.

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