Godrej split: What it means for the group’s listed firms
The Godrej family’s decision to split the 127-year old conglomerate could raise valuations of the holding company—Godrej Industries— and could also unlock value in Godrej Properties and Godrej Capital in particular; however, investors would do well to wait for the fineprint.
The restructuring of the group, announced late Tuesday, will result in two entities: Godrej Enterprises Group and Godrej Industries Group.
While Godrej & Boyce Mfg. Co. Ltd will be owned by the families of siblings Jamshyd Godrej and Smita Crishna, operating within the Godrej Enterprises Group, the families of brothers Nadir and Adir Godrej will inherit five listed companies—Godrej Industries Ltd, Godrej Properties Ltd, Godrej Agrovet Ltd, Godrej Consumer Products Ltd, and Astec Lifesciences—under Godrej Industries Group.
At the end of March, Godrej Industries held 23.7% in Godrej Consumer Products, 47.3% in Godrej Properties, and 64.88% in Godrej Agrovet. Godrej Agrovet, in turn, owns a 64.76% stake in Astec Lifesciences as a promoter. The combined valuation of these five listed companies is ₹2.4 trillion.
Historically, valuations of group companies have typically increased following such a split, given the clear alignment of powers and a transparent shareholding pattern, said Sachin Jain, head of investments at family office Sukvi Ventures.
With ownership well-defined, the direction of business becomes clearer, board resolutions can be passed unanimously, and stakeholders know which vision to pursue, he added. He explained that buying stakes in holding companies offers the potential for value-unlocking if they decide to demerge their investments or reduce or sell stakes in their subsidiaries. He acknowledged the risk that a demerger may take long or not occur at all.
Nonetheless, he said that as the market value of the investments rises, the value of holding companies would also rise.
A point in case is Godrej Industries, which holds stakes in the other four listed companies, is currently trading at a discount of more than 50%.
Godrej & Boyce, which is the owner-developer, and Godrej Properties, which is the development manager, have agreed to maintain their memorandums of understanding for developing this land parcel. While the MoUs are expected to be honoured, the split has the potential to affect the value of Godrej Properties, according to Rupesh Sankhe, an analyst at Elara Securities (India).
He suggested keeping an eye on whether the unlisted land bank, under another promoter, chooses to go public separately in the future, as this could significantly impact the role of minority shareholders.
The Godrej family arrived at an amicable split after a settlement was signed between the two factions after talks for at least two years so “the split may be largely neutral for stock prices of the listed entities except to the extent open offers are triggered due to the split,” said Dhiraj Relli, managing director and chief executive, HDFC Securities Ltd.