Explained | Why the 127-year-old Godrej Group is splitting

The Godrej Group operates in nearly every industry, from consumer products to aerospace. It is one of the largest conglomerates in India and is valued at a staggering INR 1.76 lakh crores. 

However, recently, there has been much talk in the market regarding its separation.

This blog will cover everything from the rationale behind the split to the effects on shareholders.  

Overview of Godrej Empire

Founded in 1897, the Godrej group was started by Ardeshir Godrej and his brother Pirojsha. They first established a modest lock manufacturing facility in Mumbai. As time went on, the company expanded into other industries, including consumer products, appliances, real estate, aerospace, and agriculture. As of 2024, the corporation employs about 28,000 people worldwide. 

Group Companies

The Godrej group companies are mentioned below.

1. Godrej & Boyce – Engaged in the aerospace business.
2. Godrej Industries – Engaged in consumer goods, real estate, agriculture, chemicals, and financial services.
3. Godrej Properties – Provides infrastructure solutions to the public.
4. Godrej Agrovet – Caters to the food and agri vertical with specialization in animal feed, dairy, poultry, processed foods, and beverages.
5. Godrej Consumer Products – Engaged in manufacturing soaps, hair dyes, detergents etc.
6. Godrej Infotech – Provides IT solutions.
7. Godrej Koerber – Engaged in providing logistic automation solutions.
8. Godrej Capital – Provides various types of financing options such as home loans, loans against properties, business loans, etc.

Godrej Group Split

According to a recent filing, the Godrej family has decided to restructure its shareholding in the conglomerate to operate as two separate entities, Godrej Enterprises and Godrej Industries.

Godrej Industries Group (GIG), which mainly consists of Godrej’s listed entities, will be controlled by Adi Godrej and his immediate family, including his cousins Jamshyd and Smita. GIG has a history of 127 years. 

Godrej Enterprises Group (GEG) operates in aerospace, defense, engines and motors, building material construction, IT software, and infrastructure solutions. The most prominent companies of this group are Godrej & Boyce and its subsidiary companies. Jamshyd Godrej will serve as the chairman and managing director of the group. 

Objective of Split

The Godrej conglomerate made this decision to maximize strategic development and focus on generating long-term shareholder wealth. With this split, Jamshyd Godrej stated that they would be able to drive growth objectives with minimal complexity and concentrate on utilizing their core strengths.

Conversely, Nadir Godrej stated that the Godrej Group was established in 1897 to assist India’s transition to economic independence. They think that 125 years later, trusteeship and building stronger, better communities are still the organization’s cornerstones.

Both groups are dedicated to strengthening and expanding their history using the Godrej brand. 

About Vikhroli Land Row

Adi Pirojsha’s grandfather had obtained 3000 acres of land in Mumbai from the British during World War II, and they later bought an additional 400 acres. Of which more than 3000 acres are in the Vikhroli region, with the rest being in Bhandup and Nahur.

This group of land exists in the country’s most expensive real estate markets. The 3000-acre land alone has a development potential of over 1 lakh crore INR. Hence, the split could significantly impact the company’s profitability if this land is segregated. 

Godrej Properties and Boyce have a development agreement for the Vikhroli plot. According to reports, Godrej Properties would oversee the development and receive 10% of its overall income in exchange for its services. This agreement would stand as per their MOUs following the breakup. 

Impact on Investor

In the CY (calendar year 2024), nearly all of the listed firms in the Godrej group have done quite well. Leading the pack is Godrej Properties, which reported a return of 32%, followed by Godrej Industries, which reported a return of 29%. Most market analysts claim that there have been several splits throughout history, the most dignified of which was the Godrej split, wherein all family members were consulted before becoming public. 

The development has already been included in the stock price of listed companies; therefore, it has no immediate impact. The Godrej property will profit the most if they develop the land that Godrej and Boyce possess in Mumbai’s Vikhroli neighborhood.

The Godrej group firms’ valuations will rise due to the split because each will be able to function independently, improve its finances, and provide greater value to stakeholders — generally the reason for a split. 

What should an Investor Do?

Investors who are interested in the company should consider its fundamentals, including revenues, profit margins, and financial statements. If they are invested in the company, they shouldn’t be alarmed by the split. Since every action the business takes is to benefit its stakeholders.

Conclusion

In summary, group division is a calculated strategic decision. The effects of it will become apparent shortly, but all of the group companies have a very bright future ahead of them because they are run by renowned businessmen who are well-regarded for their business judgment. By dividing the work and concentrating on utilizing their core competencies, this division can help achieve their growth goals with less complexity. If you are interested in investing in this firm, you must stay informed about any announcements the company may make shortly and speak with your financial advisor. 

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