ICRA maintains valuation grade of 'C' to Godrej Industries

On a consolidated basis, GIL's operating income (excluding non-operating and exceptional incomes) rose by 18% YoY to 1,713 crore driven by robust growth in Animal feeds and estate & property development businesses. Moreover, GIL's consolidated EBIDTA margins improved 130 bps YoY and 30 bps QoQ to 5.4% in Q3 FY13 on account of lower contribution from Veg-oils trading business and higher revenue contribution from property development businesses. The profit before tax, exceptional items, share of associates and minority interests reported 23% YoY growth to Rs 64.2 crore during the quarter.

We are revising our projections to factor in the Rs 131.3 crore non-operating profits on stake dilution in Godrej Agrovet during the quarter. Overall, considering the diversified business profile & strong long-term earnings profile, we maintain GIL's Fundamental Grading of '4+' indicating "Strong Fundamentals" and Valuation Grading of 'C' indicating "Fairly Valued" on a relative basis.

Oleo-chemicals - Cyclical downturn intensifies
The performance of GIL's oleo-chemicals division continued to be impacted due to weak global macro-economic environment, slump in exports and fall in realizations. The division reported a 9% YoY revenue de-growth and Rs 4 crore PBIT losses during the quarter. We expect the volume growth to remain moderate for next 3-4 quarters due to capacity constraints, realizations to remain under pressure due to weak demand conditions and margins to remain vulnerable to raw material price fluctuations and competitive pressure.

Godrej Properties - Vikhroli project drives strong demand
GPL's reported robust 78% YoY revenue growth in Q2 FY13 to Rs 266 crore, largely driven by revenue from its Vikhroli project 'Godrej One' (Rs 94 crore in Q3FY13) whereas revenue from its flagship Ahmedabad project remains muted. EBIDTA margin witnessed 269bps correction on sequential basis though there has been sharp 1033 bps improvement on YoY basis.

Godrej Consumer - margin declines on higher advertising and promotions
In Q2 FY13, GCPL's consolidated net sales grew by 26% YoY (organic growth ~19%) to Rs. 1,691 crore supported by strong growth in domestic (+20% YoY) and international businesses (+34% YoY). However, higher A&P spends and brand investments (+61% YoY) resulted in 316 bps decline in consolidated EBITDA margin (from 20.0% in Q3 FY12 to 16.9% in Q3 FY13). Going forward, improvement in margins through product innovations, integration synergies and scale benefits remains critical for maintaining the earnings momentum.

Godrej Agrovet - Mixed performance; recovery in broiler prices should add to the profitability in poultry business
In Q3 FY13, GAVL registered robust 25% growth in revenue to Rs 786 crore however on sequential basis, revenue declined by 13%. The YoY growth was largely driven by higher realization owing to inflationary trend, but volume was largely flat. Animal feed business which constitutes ~75% of revenue was affected by milk procurement holiday and lower broiler placement. GAVL's consolidate PBIT was lower by 4% to Rs 30 crore on account of lower boiler realization and pricing pressure in palm oil business. The realization level in poultry business has returned back to normal level which should ease some profitability pressure in Q4FY13.

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