ICRA maintains valuation grade of 'B' to Godrej Industries

13665 Investors following Godrej Ind. Share this News with them.

0

Like this story, share it with millions of investors on M3

ICRA maintains valuation grade of 'B' to Godrej Industries

ICRA Equity Research Service has come out with its report on Godrej Industries (GIL). The research firm has maintained the fundamental grade of '4+' indicating "strong fundamentals" and valuation grade of 'B' indicating "moderately undervalued" on a relative basis.

Post your opinion here

 

0

Tweet

Share on Tumblr

Godrej Ind BSE | NSE 29/05/12 Are Mutual Funds betting on Godrej Ind?

ICRA Equity Research Service has come out with its report on Godrej Industries (GIL). The research firm has maintained the fundamental grade of '4+' indicating "strong fundamentals" and valuation grade of 'B' indicating "moderately undervalued" on a relative basis.

On a consolidated basis, Godrej Industries (GIL)'s net sales rose by 42% YoY to 1,447 crore and net profit (after minority interest) grew by 39% to Rs 85 crore for the quarter ending December 2012 (Q3 FY12). However, GIL's consolidated EBIDTA margins declined significantly (230 bps QoQ) to 4.4% in Q3 FY12 on account of lower profitability in the property development and oleo-chemicals businesses.  We are revising our projections marginally downwards to factor in the slower than anticipated execution ramp-up and operating profitability in the property development business. However, considering the diversified business profile and strong growth visibility (Revenues: 16% cagr, EPS: 34% cagr over FY11-FY14), we maintain GIL's Fundamental Grading of '4+' indicating "Strong Fundamentals" and Valuation Grading of 'B' indicating "Moderately Undervalued" on a relative basis.

GIL's oleo-chemicals division reported 23% YoY growth to Rs. 332 crore in Q3 FY12, backed by 40% YoY exports growth during the quarter. The EBIT margins for the division declined sequentially (8.3% in Q3 FY12 Vs. 10.6% in Q2 FY12) with higher raw material prices due to steep rupee depreciation. While the demand scenario and realizations continue to remain healthy, we expect the volume growth to remain muted over the near term due to capacity constraints faced by the company currently. GPL's reported 10% QoQ revenue growth in Q3 FY12 to Rs 143 crore, on the back of revenue contribution from several new projects. However, sizeable contribution from relatively low margin commercial projects in Kolkata resulted in 513 bps QoQ decline in EBIDTA margin to 17.85%. Debt level has increases considerably post BKC deal with Jet Airways, although the company is planning to raise ~Rs 750 crore capital via fresh equity infusion and/or diluting stake in SPVs.

GAVL registered 27% YoY growth in sales to Rs 627 crore and 48% growth in PBIT to Rs 32 crore in Q3 FY12. All major segments have reported strong growth, especially animal feed business that has reported 37% YoY growth to Rs 454 crore driven by healthy growth in volume (up 22% YoY) as well as improvement in realizations. In Q3 FY12, GCPL's consolidated sales grew by 36% YoY to Rs. 1,344 crore supported by strong growth across domestic (+20% YoY) and international businesses (+68% YoY). Besides, EBITDA margins for the company increased 210 bps QoQ and 290 bps YoY to 20.2% in Q3 FY12 on the back of favourable category sales mix, integration led cost saving initiatives, efficient commodities sourcing and competitive and efficient advertisement spends. Consolidated PAT increased 41% YoY to Rs. 167 crore.

GIL's FY13E earnings multiples are at ~15-35% premium to Bloomberg Consensus estimates for broader market indices like CNX Nifty index, CNX 500 Index and the CNX Midcap index. However, GIL is an investment company with significant value inherent in its key investments - GCPL, GPL and GAVL - which are present across various business segments. As per our estimates, GIL's consolidated revenues are estimated to grow at a compounded annual growth rate (CAGR) of 16% during FY11-FY14E, while the consolidated EPS is estimated to grow at a CAGR of 34% during the same period. Considering our strong EPS growth expectations for the next three years, we find Godrej Industries to be still undervalued and retain our valuation grade of 'B' assigned to the company on a grading scale of 'A to E', which indicates that the company is 'moderately undervalued' on a relative basis.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment