Monday, November 2, 2009

Realty unit IPO to give Godrej’s growth a fillip

Investment In Realty Biz May Go Up To Rs 1k Cr

SHARES of Godrej Industries (GIL) have outpaced the market over the past six months by a wide margin. However, the weakness in the second half of October saw the scrip fall faster than the benchmark Sensex. At Rs 178.50, GIL shares are trading two-and-a-half times against year ago period compared to the 62% gains logged in by the Sensex.
GIL has been restructuring its businesses over the past several quarters. The company recently approved the merger of its wholly-owned subsidiary Godrej Hygiene Care with Godrej Consumer Products. After the merger, the holding of GIL in GCPL will go up to 24.8% from 21.6%. The company also bought back 21.3 lakh shares for Rs 28.9 crore.
Earlier, it had sold off its wholly-owned subsidiary operating in the pest control business — Godrej Hicare — to ISS Services and its BPO business under Godrej Global Solutions to Tricom India. The company also plans to divest its traditional business of vegetable oils by selling off its old refinery and develop real estate.
In the quarter ended September 2009, GIL signed a memorandum of understanding (MoU) with its 80% subsidiary Godrej Properties and its parent Godrej & Boyce to develop property in Vikhroli. To start with, in the first phase, it has plans to develop around 30 acres of land.
The company’s consolidated September 2009 quarter numbers were, as usual, dominated by its real estate and investment businesses apart from the extraordinary income on sale of Godrej Hicare. The company reported a three-and-a-half times jump in net profits after three consecutive quarters of profit fall.
At the current market price of Rs 178.50, the scrip is now trading at a price-to-earnings (P/E) multiple of 44.4. The company is being valued mainly for its asset pool — primarily the land bank — rather than its earnings. The current share price is around four times its book value.
GIL’s investment plans centre around its real estate subsidiary —Godrej Properties — which has received Sebi approval and is expected to approach the capital market soon with its initial public offer (IPO). The total investment in this business could go up to around Rs 1,000 crore over the next 12 months, provided its fund-raising plans fructify. This much-delayed IPO will unlock the value of GIL’s 80% stake therein and could provide a fillip for its future growth.


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