Godrej Industries Limited – 1Q12

My core holding, Godrej Industries Ltd. (GIL) continues to inch up amidst all this talk about desi rate hikes, debt ceiling, Greco-Roman excesses and Obama’s insomnia. Over the last one year, the stock is up 15.7% compared to the NIFTY. The company announced its 1Q12 results on 30Jul11 covering the following points:

  • The agri business has grown 40% yoy while the other core business of Chemicals is up 28% yoy. Both in revenue terms.
  • A 46.34% growth in consolidated net profit at INR 71.33 crores. The consolidated net sales increased 35.85% at INR 1,307.42 crores for 1Q12.
  • Godrej Properties witnessed revenue growth of 83 per cent despite a difficult quarter for the real estate sector

So to me, the results look very good indeed. In my previous post on GIL (dated 31Oct’10), I’d written about the integration challenges that GIL will face as it goes about acquiring companies. Well, the recent Godrej – Hershey breakup just adds to the fears. I guess global majors may be seeing low barriers to entry in the yummy Indian food sector and therefore itch to go solo. I’m thinking – how expensive would it really be to set up a sales & distribution & marketing infrastructure when denominated in GBP or USD? I don’t know but it may not be a large sum for a global foods major who has decided about getting serious in India. I know I may be trying to justify but typically I do not fall in love with the stocks I own!!

Another update I wanted to share was about the general notion that holding companies are duds because they trade at a massive discount to the market value of the assets that they own. Last month there was a lot of buzz about these holding companies – thankfully the general downward bias of the markets stopped spikes of manic proportions. As of now, I don’t give a rats ass about holding companies other than GIL obviously. Speaking of which I did start wondering about who moved my cheese when I came across this video clip of an interview of Basant Maheshwari on CNBC-TV18!! This is what he had to say about the Godrej gang of shares.

Godrej Industries did very well for 4 – 5 years because investors who wanted to buy Godrej Properties, couldn’t buy Godrej Properties. The only option was to buy Godrej Industries, but now if Godrej Properties is listed and I am bullish on Godrej Properties, I’ll go and buy Godrej Properties. Why will I buy Godrej Industries?

And these are the nuggets of wisdom I picked up from this interview:

  • Embedded values in holding companies always remain valuable!!
  • Investors make money in a cheap stock only when the cheap stock becomes expensive. So it has to bloody well move. There is no point in holding up your capital on a sloth.
  • If you are playing for the valuation gap i.e. the discount factor of the holding company to aggregate market value of its assets, then that’s wrong since the discount will always continue to exist.
  • Key play should be in holding companies which A) consolidate the earnings of their subsidiaries; B) the subsidiaries pay dividend and C) the holding company has a majority holding. C being the cause of point A  really.
  • Buy those kind of holding companies whose subsidiaries are not listed such that the act of taking them public monetises  the discount factor and unlocks value.
  • A holding company that receives discount from its subsidiaries usually does not go into too steep a discount. That is because if the dividend yield of the subsidiary is X% and the holding company is at a Y% discount then the dividend/income yield on the holding company’s portion of investion would be X%/(1 – Y%). The market will flatten this discrepancy by reducing the discount.
  • The reason why discount is justified is because if a holding company decides to monetize its assets and sell of all its holdings, it will still have to pay taxes on the income recieved. Therefore, the logic for discounting holding company’s asset values is correct.
  • Finally, if you are bullish on the holding company you have to be bullish on the underlying assets. If those assets are listed, it always makes sense to buy the underlying assets directly.

Now this has me thinking. Need to investigate and read up more to figure out what to do.

Finally, This is how some people are valuing the company: 9 times multiple for core businesses of GIL + 40% haircut to the market value of GIL’s stake in Godrej Properties and Godrej Consumer Products Limited. Adding all of this up gives a Sum Of The Parts valuation of ~240 – 250. Given CMP of 225 – 230, the company looks fairly priced. From the short term technicals perspective, 240 looks like a good resting place for the stock. From the longer term perspective, which is mine, the play is to ride the business growth and hope for a measured EPS expansion in the quarters to come.

Godrej Industries Limited – 2Q11

A deluge of work kept me away from the keys momentarily. As I had said in some of my previous posts, I am massively long Godrej Industries Limited. While the stock has moved up quite a bit since my first post on it dated 11Jul’10 it did give back some 13% of its gains during the previous 45 days or so. I am perfectly happy with the situation. The position is net up 34% (weighted average) for me over the past 5 months that I’ve been holding it. I guess I was lucky to have bought into it at a good time and from here on I am content for it to give me a slow and steady compounding. In fact the purchase logic was based on the diversification that GIL gives – given it’s 69.4% and 23.4% holding in Godrej Properties Limited (GPL) and Godrej Consumer Products Limited (GCPL) respectively (and other group companies). Of course, there is the native chemicals business of GIL as well . While holding companies will never trade at a sum predicated by the value of their assets, the beta reduces as compared to a direct exposure to GPL. In the case of holding companies, the sum of parts is always less than the whole.

The quartely results of GIL were announced on 27Oct’10. The net profit on a QoQ basis increased by 12.5%; their chemicals and agri business is looking up and other regulation stuff. Nothing much to write home about the results – along expected lines of the company and the analysts. There was an expressed fear about inflaton eating into the profits of GCPL but that did not happen. The possible hardering of the interest rates could eat into the margins of consumer durables industry though which is generally believed to be a rate sensitive sector like auto. That remains to be seen.

I keep tracking the news stories about GIL fairly regularly. The company has certainly kept the news wires busy in the past months. I don’t know why but I end up investing in companies which use Bollywood and regional film personalities to peddle their products. A lot of names have been coming up in my alerts on GIL – the likes of Raveena Tandon, Soha Ali Khan, Vijayalaxmi, Malaika Arora Khan, Vidya Balan, Mugdha Godse et al. The other company whose products are endorsed by stars is Gitanjali Gems, which is now up a further 10% since my last post on it dated 25Oct’10. Cool. Here are some other important news stories that I caught re Godrej Industries:

– The new Godrej Appliances ad tries to shift the customers’ focus from refrigerators to other white goods. The company sells one fridge every 30 seconds in India so they’re correct in spending ad money on stuff other than fridges. The other good thing about the ad is that it does not feature Preity Zinta – which is a good change, according to me!

– Godrej Agrovet is exploring acquisitions in micro irrigation (competition for my other position in Jain Irrigation?). The prime minister shook a lot of hands in Malaysia recently – maybe that bodes well for Godrej Agrovet’s palm oil business?

– I keep the Godrej hand sanitiser (Protekt) at my work place. It’s good. This market (currently at 25 – 30 crores only) is growing at 50% per annum and is in its infancy. GCPL is eyeing a quarter of this pie.

– GPL expects it’s revenues to rise 50% this fiscal. There have been a few assorted stories saying that realty stocks will fall since the RBI has come out with tougher norms for bank lending to the housing sector. I don’t subscribe to that view. Point being, first time home buyers can always borrow the additional 5% – 10% from family while older home buyers should have the necessary funds. In any case, 1) GPL wants to increasingly focus on affordable housing in cities like Nagpur and Kanpur – where the demand should continue to remain high and 2) some banks were anyways calculating the % of finance at 85% of property value+ stamp duty. There is a tremendous ambition in smaller towns to go upscale and improve the quality of lives – and GPL should benefit. There is another company called Ashiana Housing Limited – which looks reasonably priced and is also following the joint venture model of GPL. Need to check on that story. But later.

– They’re looking to merge GCPL with Godrej Household Products Ltd (GHPL). GCPL is keen on acquiring FMCG firms, particularly in hair colouring, household insecticide and personal wash segments in Asia, Africa and South America. Good luck on that. The proces of consolidation will show whether GCPL can truly make itself over into a true multinational with a common footprint across multiple countries rather than merely being a company with a motley collection of stakes in various companies across the occident and the dark continent.

– Close to 80% of construction of GPL will be for residential purposes. Thankfully, we need not worry about SEZs and other commerical sales, which are highly correlated to business environment. The good thing about GPL (had mentioned in previous posts) is that it just wants to focus on its core area of expertise – getting the projects, the JVs with land owners, marketing and sales and using its brand pull to get in the home buyers.

– While the focus is on affordable housing in the 25 lakh bracket, GPL also has its game right in the mecca of big property in this country: Bombay. The story about it’s gigantic plot of land in Vikhroli is old hat. What’s new is the JV with Bombay Footwear to develop 1.5 lakh sq ft in Chembur and a MoU with Jet Airways to deliver 1 million sq ft of office space in Bandra Kurla Complex.

Mutual funds have been on a selling spree while the Foreign Institutional Investors lap up our desi shares. GIL however has been on the buy list of the fund houses like DSP, Edelweiss, HDFC and Religare. I am ready to load up more on my already massively long, passively managed position but it needs to dip down (on unrelated news). Till such time I will have to keep suffering Preity Zinta I guess. Cheers.

Buying a House – Tips and Paperwork

Rishab asked a few questions a couple of weeks ago regarding buying property and I will try my best to answer these as well as I can. I guess what I can safely say is to take as much advise as possible from friends, family, bankers, financial planners (if you have access to them) and of course, the internet. It is a great proud feeling to buy your pad (if buying for the first time) and it also involves us emotionally. Like hunting for jobs, this experience should be enjoyed and not feared or seen as a chore. We don’t hunt for jobs or houses every day, do we? Here are a few words of advise that I can suggest from my limited set of experiences so far. Caveat emptor.

1. Pre-Owned or Ready only – I would recommend that you purchase a house that is near complete or second hand only. There is too much economic uncertainty and too much of leverage on the books of real estate companies in India to share project risk with the developers. We have one life and most of us get one chance to pick up a house – we should be as risk averse as possible. With land prices in urban India being bid up higher and higher, property developers have to borrow to buy. If the interest rates rise in the future it will make the going quite though for the real estate companies. That is the reason why the business model of Godrej Properties (GPL) is so cool – they mostly lease property from owners, develop it and share the profits. And that’s one of the reasons why I consider my investment in Godrej Industries Ltd (part owner of GPL) to be a part of my core holdings. Inner core.

2. Documents to look for

The following documents are usually sought for when buying a second hand property:

– Agreement of sale between the builder and the first owners and all the subsequent agreements of sale thereupon.

– Papers that uniquely qualify a clear title to the land. Also known as the Conveyance Deed.

– Registration certificate of the housing society. It usually takes 1 – 2 years after posession is granted by the builder for society formation.

– No objection certificate from the society to transfer the flat in the prospective buyers’ name.

– Copy of share certificate of the society. Once the society formation is complete, it issues share certificates to its members. You should take a look at this.

– A draft agreement of purchase (between you and the seller)

– Copies of municipal tax paid by the society. This may be tough to get but you should try.

– Occupation certificate granted by the municipal corporation to the builder.

– No objection certificate from the society to mortgage the flat in the favour of the bank, along with a letter stating the lien (this is in case you want to avail a housing loan)

– Income tax clearance of the seller (for registration purposes only). Check that.

There are other sets of documents that would be required if A) buying a resale flat if the society is not formed or B) if you are buying a new flat from a builder. Let me know and I shall email these to you. It is prudent to ask for/be aware of these documents. Indeed some housing finance institutions may not ask for all of these (more on that later) and the builder/society might spin tales as to why some of these documents are really not required – if that happens just walk out of that meeting. When I was looking around for my first house, a particular builder just did not want to part with the architectural plans and other documents of a second hand, unlived flat that I had liked. Luckily for me, I did not have a penny on me (only a promise of future income) and therefore I did not have any option but to look to a bank for finance. Since the bank would not advance the loan if the architectural drawings were not made available I had called it quits.

3. Finance – I am really in no position to opine on which housing finance company you should take your loan from. This decision is not as straight forward as taking out term insurance – in that case you should simply head to the insurer that offers you the lowest premium. Most properties are on the ‘pre-approved’ list of many financers – which means that they have already completed most of the paperwork required. Buying property in such buildings from these banks reduces the risk of landing up with an unclear title as well as easing up the paper work. Public sector banks in India generally offer the most competitive rates but dealing with them may not be a smooth affair. They don’t give a rats ass whether you give them your business or not. On the other hand, private sector banks put stiff sales targets on their sales people and you really do not want an over zealous sales turk to finance what turns out to be a sand castle to you! Finally, interest rates may very well rise in the near future. Inflation is too big a monster for the Reserve Bank of India (RBI) not to do anything to the current rates. However, most banks offer only a 3 year fixed when they refer to fixed rates. I daresay that if someone is to buy a house next year, he/she should pick a floating rate – but it really depends on your view of the interest rates. 

4. CIBIL Credit Report – You should apply and procure your credit report from Credit Information Bureau India Limited (CIBIL). This is available for a nominal processing charge and is one of the things that banks look for when deciding on the grant of the loan. There are known instances where people have found errors in their CIBIL credit reports and while the RBI prescribes a time limit of 45 days for compliants to get resolved, you do not want to be running around clearing the errors in your credit report. Purchase opportunities do not last forever. In fact you should procure and check your credit report regardless of whether you intend to take a loan or not. Beware, if you are blacklisted or your credit score is very low, the chances are extremely high that your loan application will get bluntly rejected without a proper explanation. The onus will be on you to investigate and clear your name. Even if this is your first mortgage application, the fact that you might have had credit cards to your name – some of them you don’t even know if you own – will reflect in this report. Just get that report – home loan or not. My gut is that the public sector banks will be quite partisan to the credit report. At least the private banks might be inclined to help you work your way towards clearing your record (if tainted) since there are sales targets to meet.

4. Other considerations – Some other points that you might want to keep in mind (readers, please add on to this list if you can. I will keep adding as and when I get new insights):

– While the useful life of buildings is usually considered to be 70 – 80 years, do not buy a property that has had more than 2 past owners or is more than 15 years old. Maintenance expenses spike up around this point in the life of a building.

– Do not pay more than 1% as processing fees.

– Best to get a term insurance cover from the same institution to cover the quantum and tenure of the loan. Use this option to squeeze a better rate from the bank. Reveal this card only during the latter stage of rate negotiation.

– One trick that many want to play is to play one bank against another when trying to drive a bargain for the best rate. I don’t feel it’s worth it – India is a growing economy. The mortgage to GDP ratio for rapidly urbanising India is a paltry 7% which is way, way behind the developed economies (60% – 70%). So, banks are not under too much pressure to run after you.

– If the seller of the house also has a mortgage, it’s advisable for you to take your loan from the same institution.  The process gets simplified. Unless of course some other instituion is offering you a much lower rate.

– Bargain with the seller like your life depended on it. In some ways, it does. At least your financial life does. Rehearse your speech and plan your tactics, even if it means you appear like a penny pinching moron.

– If you are married, buy property in joint name. Makes things easy later on.

– Try to see the locality during the peak of the monsoon season. You’ll get an idea of water logging, seepage etc.

– refer to my other post on Buying Property for some more ideas.

Buying Property

Some time back Sushanta had asked me to write something about buying property. As luck would have it I was contemplating buying a house in Mumbai at around that same time, but dropped the idea. Not because the price was outside my comfort zone but mainly due to the fact that it clashed with my firm belief to buy houses only after they are nearly complete. I haven’t purchased any house which is “under construction” or “proposed construction” till date. I personally know of friends and colleagues who have been stuck with housing loans where they have started paying the interest component on the loan but the building is far from getting completed. This is the worst possible situation one can be in since the principal stands as it is and you only service the interest component. Many young families give in to the lure of booking property the moment it is conceived on the drawing boards of the architects since these are usually offered at a discount to the current market prices prevailing in the locality. The rate in one of Mumbai’s suburbs where I stay is c 10,000 /per sq feet ( ~1 lakh /sq.m ~USD 2,500/sq.m) and in this particular case I was being offered a flat @ 8,000 psf which would get ready in end 2012. The builder would have to be paid in installments (as and when the plinth, slabs, etc.) get ready. The builder is well known, location of the property is sexy and the future piece was being offered at a discount of 20% to current prices. I would effectively be giving a loan to the developer. Assumming that prices in that area escalate by 10% per annum (they have actually compounded up ~15%  in the past couple of years), it would mean a completion price of c 12,000 psf. I pay 8,000 today and get back 12,000 in 2 years time! I would effectively be lending money to the builder at > 22%! (It’s actually greater than 22% since I would paying for the flat in installments). Makes you wonder what kind of loony builder is this? Well, not quite for I think that Pareto’s rule applies in the housing construction acitivity as well. Close to 80% of the actual costs of a building are incurred during the last 20% of the construction acitivity. Fittings, lifts, floor work, workers wages, permits etc. are what consume up a lot of cash but are needed much later – therefore the builder enjoys the float till that time.

Anyways, given my personal situation I figured out that I’d have to take out a loan for 50% of the amount ( = 4,000/-). and shell out an interest @ Rs. 40 psf. Moreover there is always a chance that the builder over leverages himself and is unable to complete a project (or cuts corners). Idea dropped – I would be happy to deploy that capital in the capital markets and expect a modest 15% annualised return instead. At least I’d have near instant liquidity and can always withdraw in case the need for a house becomes a painful obsession later.

Here’s my two cents worth regarding home buying: 

  1. Decide if you want to rent or buy. pre-tax rental yields are in the range of 2% – 4% in the suburbs of urban India (my hunch). Which means its a pretty stupid business to let out flats which logically means that it must be quite smart to rent. But young families need to build assets and there’s tremendous social pressure to own a house, and therefore we feel the need to move down the list.
  2. There are three main things that one should consider when buying property. These are A) Location, B) Location and C) Location.
  3. Stay within your means. Do not extrapolate salaries into the future and do not overextend in the present. Who knows the tide might just turn and all outsourced jobs might get sucked back into the countries of their origin.
  4. Do not buy property which you cannot touch and see. Period. The risk of promises being broken is high.
  5. If you are a young family and are renting it – then buy a house subject to above 4 constraints.
  6. If you are a young family and are staying with your parents and have no house of your own – then buy (again subject to points 2 – 4 above)
  7. If you are any kind of family and already own houses (my category) buy your next one at outright cash as far as possible and only for portfolio diversification. Which means you’d already have mountains of wealth in other asset classes (not my category!). Unless of course, you can afford the additional leverage.

Taking point 7 forward, I’ve never been too much of a fan of the adage, “make money on Wall Street and bury it on main street”. Many of the visitors to my site would never have made enough money on Dalal Street anyways.

In case you get stuck at point 1 above and keep staying in rented places (many people I know do this), then please ensure that the notional excess of cash at hand is deployed wisely. Hard nut to crack for most. Especially for young Indians whose parents come from the boring mileau of the license raj and Hindu rates of growth. The earning generation’s distinguishing identity seems to be today’s conspicous consumption habits. If you have the fortitude to resist the temptation of “keeping up with the Junejas” and deploy the money in (>> inflation) longer term, boring occupations, then please – do drop off the list at point 1 itself.

An extension of point 2 above is a heads up: just because you have to buy a house, do not pick one up in too remote location/city however attractive the price would be. The risk of buying houses/land in remote cities and localities is that prices remain stuck for ages and the trigger may not come in the current generation (i.e. yours). Can you say with certainty where your kids will be once they are old enough to understand website posts like this? And that they will not curse you for buying assets which they have no interest in at all.

Another problem many non-native families to Mumbai (or any other city for that matter) face is their aversion to taking up residence at the periphery of the city center or further away from their workplaces. It may be difficult forgoing easy accessibility of all the interesting sights and sounds and tastes but the outwardly radial move is well worth it – you save money. Beyond a certain point the convenience factor of being in the center of the city is taken for granted and the irritation of staying in an outpost starts to wane. Logic would dictate that a cannily chosen outpost would appreciate faster than a much discovered nerve center. Something like mid-caps vs. large caps.

Does that mean that I do not personally prefer being long on property (other than the one where I reside)? I do – that’s the reason why I’ve sunk in some amount of money in Godrej Industries Ltd. (though not directly into Godrej Properties)

Reliance Industries Limited

The biggest sloth in recent times has been the Reliance Industries (RIL) stock. As the market (i.e. the NIFTY) traipsed on from 4,800 to 5,500 in a matter of 3 months (~15%), I have been licking my chops (no, I do not work in the chop shop) and have been generally sporting a nice spring in my step. But now I do not know how long my sunny demeanour will last for I have just about picked up a biggish position in RIL and am squarely on the path of Mukesh Ambani. It’s a trading call, unlike the Godrej Industries investment of mine. I feel quite sanguine about the Godrej depoyment, but not so about the RIL punt. The former has careened up 22% (weighted average returns) in 2 months for me and I will surely add to the position should the stock correct in the future. There was news and informed criticism of the US Fed’s solving of its debt related problems by adding on more debt. It definitely means that they’ll have loads of cash sloshing around in their backyard which they will want to deploy in high alpha economies. So some of it will come to India and that may take our local market higher on from here. But since this is hot money and the investment managers need to keep booking profits, sure enough and soon enough the market should correct. Will give some more cash to Mr. Adi Godrej to manage when that happens.

But coming back to flirt with RIL, I have gone long the stock (cash) and have also bitten a bite of the 30Sep 1040 call. There is next to no liquidity (as of now) on the Sep call and maybe the informed, knowledgeable pundits will shake their heads – but I feel that I have a story. I almost never get my options right – the brokerage charges are also too high for my liking and moreover you need to A) be understanding of the math behind how option pricing works in reality and B) be nimble enough to strike (both in and out) at the right moment.

Earlier, I had briefly written about the drowsiness in the RIL counter here and have been keenly watching this oily worm every other night. As you can see from the chart, it has slithered down to 970. The Bollinger Bands and the RSI seem to be giving a buy signal unless the stock is stuck in a downward channel. Then it would be akin to catching a falling knife. These technical indicators work best when the underlying is smugly oscillating in an escalating envelope. Anyway, I have my grip on my stop losses. If one fears or loathes getting wet, then one should not venture into the sea. But remember, only deep sea fishing gives the largest catch. I also scoured the internet to see some reason behing this very sleepy state of this behemoth – at least on the bourses. there are a few things happening (as listed below) but I do not know if they matter much. You may be aware of the old chestnut about the market being a voting machine in the short term.

  1. They’ve started pimping their pumps. They are selling at same rates as that of the PSU oil retailers. I remember some of my trips around Bombay – the Reliance pumps were always closed. The price decontrol announcement by the Government seems to have opened up the nozzles at private oil vendors like RIL and Essar Oil (have a position there as well). BTW, one comes across a very interesting string of letters when we read about fuel retailing trade lingo – DODO COCO CODO (Dealer Owned Dealer Operated – Company Owned Company Operated and Company Owned Dealer Operated). Notice the absence of DOCO.
  2. Maybe the stock has been moribund due to the announcement of RIL’s acquisition of shale reserves in the US? Perhaps the markets did not like it?
  3. The company is going to raise some money by selling off some of its treasury stock. Is that why the stock has been tied down while the rest of the market was inching up?
  4. I think the real reason has been the orchestrated downgrading of RIL by some domestic and international brokerage houses towards the end of July based on the realisation that the KG Basin may not be able to pump out as much oil and gas as what was expected/communicated by RIL. So it’s like the force of gravity acting on a balloon. Things seem to have reached a state where the forces of buoyancy (market rising) and the forces of gravity (broker downgrades) have been counterbalacing each other. Any trade is now a bet on what gives.

My personal take is that RIL is too complicated a business to understand. I do not know how many brokerage houses themselves understand it’s business thoroughly. But the brokerage community lives by its own code – one of them being a shared recognition in the importance of belonging. There’s tremendous security if the whole bunch believes in, talks about and does the same thing. While you are not better off, but most importantly you are not worst off either. In fact there has been a book called Zachs method of investing whose central tenet is to make investing decisions based on a statistical analysis of brokerage ayes and nayes.

STOP LOSS. DONT THROW GOOD MONEY AFTER BADNot that I can claim to “undestand” the companies that I invest in. You really have to be a senior member of the insider team to know it all. But since the trajectory of the Indian market has been upwards during this past decade, it would take a terribly unlucky bloke to lose money on the markets – on a longer term basis. For me one thing is clear – most of the experts who I lend my eyes to are saying (in print) that there seem to be no signs of the market having topped out in the intermediate term. The logic therefore is that if the market needs to move up and reach it’s intermediate top (before the hot money decides to leave our shores), RIL needs to perform. Hope I get lucky on these punts. Stop losses are my pillows.

Godrej Industries Limited

Once while coming to work in an auto-rickshaw, I had the great fortune of being driven by an extremely chatty driver. The good man had loads of original theories on how to solve India’s population problem. Uttar Pradesh (UP) in particular. I’m sure you must be aware of the standard chestnut where applicants to consulting or other weird jobs are called to estimate the number of some random widgets in a given geographical area. Well, this rickshaw driver sure can make it through any of these interviews. If only he was a bit more suave and lettered. In a span of a few kilometers, with wheels turning at not more than 30kmph, he picked out the population of present day UP, logically assumed the number of “useless” people above 50 years and under 10 years of age, and logically devised a plan to eliminate them etc etc. While we turned an oft turned turn, he got pretty excited on seeing the Godrej premises in Vikhroli (a suburb in Mumbai) and started telling me that the Godrejs are actually from UP. I was hooked though I really was not too interested in the ansectoral origins of the Godrejs. Rick man confidently asserted that the real name of Godrej (which of the Godrejs’, I dared not ask 🙂 ) was actually some XXX Thakur. I forget the first name that he mentioned but it sounded pretty lyrical. According to him, this XXX Thakur came to Mumbai penniless and worked very hard in the city of opportunities. To muck in well and to sound important, he took on the title of Godrej. “What does the name mean?”, I had asked him keeping a wary eye on the meter for my office was near. He did not know. We’d turned off the main road and gotten inside the office premises and this guy got further excited upon noticing a railway line that passes behind the building. According to him, the Godrejs wanted to build a railway station bang between Vikhroli and Ghatkopar (neighbouring suburb to Vikhroli) but could not since they would not bribe – or something to that effect. It was a very interesting trip (some 7 – 8 months ago) – before this there was also some talk about a lady doctor who used to hire his vehicle daily and a young woman who used to work in the doctor’s clinic, but that story is out of context and a bit crass to mention. But please do pick the brains of auto rickshaw drivers of Mumbai (or any Indian city for that matter) – they are quite a chatty lot and they work quite hard.

So that was it – but I think that there are two points here about the Godrej Group that seem true. First is regarding corporate governance and citizenship. It’s one of the most respected business groups in the land and for good reason. I really don’t know (nor care) if the story regarding the railway station between Ghatkopar and Vikhroli is true or not. The second point is that Godrej & Boyce has given a massive, Massive, MASSIVE chunk of land in Vikhroli on a 99 year lease to Godrej Industries Limited who have further given the developmental rights to Godrej Properties Ltd. (IPOed in Jan ’10). Now, in 1985 there was a company called Sea Breeze Construction owned by Mohan Khubchand Thakur and Desiree Mohan Thakur which came into the Godrej fold in 1989. So that’s how this yarn must’ve been spun!

Anyway, maybe the rickshaw drivers of India deserve a seperate post for themselves but the real purpose of this entry is to record one of the things that has been occupying my mind for fair measure: Godrej Industries Limited as an investment opportunity. I had some excess cash recently and wanted some parking place for it. Fixed income is not really me – bonds/debentures and National Savings Certificates, Company fixed deposits et al.  I bought some amount of gold (in the form of units of an Exchange Traded Gold Fund) but I still wanted some occupation for my idle funds. Finally, I picked up Godrej Industries as one of my core holdings. Equity is where I usually am and equity is where I usually will be for the next decade or so.

While there are short term predictions by various “experts” that the share price will reach 184 – 190, this is one purchase of mine where I haven’t stared at the charts too much. For the following reasons:

  • Its a holding company. Usually, in India – holding companies always trade at a significant discount to their net asset values. If someone does a sum of parts of all the asset values of a holding company, compares the sum with the current market cap and therefore presents a “deep value” kind of spiel, please do not give in. Caveat Emptor. Discounts of 40% – 50% are also not unknown.
  • Market is almost always right. On the very rare occasions where it is not, the effect can be seen quite tellingly on the charts. Moreover, well known, highly capitalised and liquid counters are covered very well by the stock analyst community. Information tends to me less assymmetric (though in India, you never know!) – which means that the chances of hitting a home run based on some insider info is rare. Moreover, we all must feel some security and trust in a name that has been synonymous with locks in India.
  • But I read somewhere that the market does not or does not want to see too far out. It’s view is limited to 6 – 9 months. For good measure. The market participants which ring in the most volumes – who are not you or I – need to keep an eye on churning their capital. Most of it borrowed.

So why look at charts excessively, if its sticky money that you want to deploy? And as I said in a previous post – it’s not when you buy that matters. It’s your selling point that makes all the difference.

Not that I looked at anything else, for that matter. 😐

It gives us a diversified play – property, consumer goods, agrovet, chemicals, etc. The “etc.” is not an after thought – there are indeed other small diversified business units. For example, going back to my autorickshaw trips – earlier I used to wonder as to why Geometric Software’s office is in Godrej’s property (same locality as the venue of the opening narrative) – but there was no motivation to find out – recently (as a result of reading up on Godrej Industries) realised it’s Godrej connection. Godrej Industries owns 100% of Godrej Chemicals, 75.2% in Godrej Agrovet, 69.4% in Godrej Properties, 23.4% in Godrej Consumer Products, 43.4% in GHL. Price discovery seems full (maybe even a tad high – who really knows what discount to its NAV is ideal?) – but to me it looks to be a steady compounder over 4 – 5 years. Godrej Properties came out with an interesting concept – of real estate developers not necessarily having to own the land parcels on which they build. The company also announced plans of increasing their focus on low income housing. But the jewel in the crown seems to be the Vikhroli land. All this is known since ages and factored into the price – but the market is sometimes myopic. So maybe the game is on.

At first glance, the PE also looks high – but companies that are turning around and turning black – usually have high PEs which fall back in line as the earnings catch up.

My notes on this are quite long and there’s really no point in going further. Maybe I will restrict writing about Godrej Industries once a quarter. Two last points

  1. I really like shopping at Godrej’s Nature’s Basket. Mostly in Mumbai, a couple in Delhi and Bangalore. One Mumbai outlet is bang below my home. Till date, if I have ever cooked anything – the ingredients have been purchased at my local Nature’s Basket outlet. Will post pics of my cooking disasters later.
  2. 4.5 acres of land in Mulund (another suburb in Mumbai) recently changed hands at ~200 crores.
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