Indian billionaire Adi Godrej said real estate will deliver his company’s fastest growth over the next five years as foreign rivals such as Unilever Plc (ULVR) and Procter & Gamble Co. (PG) constrain his flagship consumer-goods unit.

By Ruth David and Malavika Sharma | Bloomberg

“The strongest growth potential we see is in our property- development business,” Godrej, chairman of the Godrej Group, said in an interview at his office campus on the outskirts of Mumbai. “No one has any significant market share. It is divided among a large number of players.”

Godrej Consumer Products Ltd. (GCPL), in which Temasek Holdings Pte. bought a 5 percent stake in January, has faced “tremendous competition” in recent years from international companies eager to tap India’s booming consumer market, said Godrej, 70. That trend is set to continue, he said.

Unilever, the world’s second-biggest maker of consumer goods, has almost a third of the beauty and personal-care market in India after more than a century operating in the country. In real estate, where investment rules constrain some global operators, Godrej said he mainly contends with smaller, domestic rivals. India’s property market is forecast to grow to $180 billion by the end of this decade from $66.8 billion in 2011, according to the India Brand Equity Foundation.

Godrej’s optimism isn’t shared by some investors and analysts. Godrej Properties Ltd. (GPL) has slumped 18 percent in the past year, the worst performance among the group’s three publicly traded units. Fifteen of the 22 analysts that cover Godrej Properties have a sell recommendation on the stock, according to data compiled by Bloomberg.

Not Positive

“If you compare the consumer business of Godrej with the property business, yes, property will grow faster, but overall we’re not very positive on Godrej Properties,” said Anubhav Gupta, an analyst at Kim Eng Securities Pvt. in Mumbai, who recommends selling the shares.

The BSE India Realty Index tumbled 28 percent in the last year as India’s central bank raised interest rates a record 13 times from March 2010 to rein in inflation. That cooled economic growth to 6.9 percent in the 12 months to March 31, the slowest pace in three years, and damped demand for homes and offices. The bank cut its benchmark repurchase rate to 8 percent from 8.5 percent on April 17, the first reduction in three years.

$3.3 Billion Revenue

Adi Godrej’s son and youngest child Pirojsha Godrej, 31, heads the property arm that plans developments spanning 74 million square feet. Eldest daughter Tanya Dubash, 43, is on the boards of group companies Godrej Consumer and Godrej Industries. Daughter Nisaba, 34, is president, human capital and innovation, for Godrej Industries and associate companies. The group, which started in 1897 as a maker of locks, has seven units with combined annual revenue of $3.3 billion, according to its website.

Godrej Consumer, which makes Cinthol deodorant and HIT home insecticide, surged 33 percent in the past year, compared with a 12 percent drop in the benchmark Sensitive Index. Godrej Industries Ltd. (GDSP), a maker of chemicals and edible oils, rallied 25 percent.

Godrej Properties posted sales growth of 69 percent in the year ended March, while revenue at Godrej Consumer expanded 33 percent, according to data compiled by Bloomberg. Godrej Properties’ profit fell to 398 million rupees ($7.4 million) in the quarter ended March 31, compared with 600 million rupees a year earlier. Godrej Consumer’s net income rose to 1.93 billion rupees in the period from 1.42 billion rupees.

Treble Profit

Godrej consumer had 4.6 percent of the Indian beauty and personal-care market in 2011, compared with 32.2 percent for Hindustan Unilever Ltd. (HUVR), the local unit of the maker of Hellmann’s mayonnaise, and 5.4 percent for Cincinnati-based Procter & Gamble, the world’s biggest consumer-goods company, according to data from the Euromonitor Group. Godrej holds the lead in home insecticides, with 33.9 percent of the market, followed by Reckitt Benckiser Plc with 23.5 percent.

“For Godrej Properties to treble its profit in six years is something that can happen,” said Arun Kejriwal, director of Kejriwal Research & Investment Services Pvt in Mumbai. “For Godrej Consumer to do half of that, that is, one-and-a-half times profit in six years, the sales would have to more than double.” That can’t happen unless the company undertakes large acquisitions, he said.

Eight Acquisitions

Godrej Consumer, India’s third-largest maker of personal- care products by market value, has acquired companies in Asia, Africa and Latin America to expand its presence overseas. It has announced at least eight purchases since January 2010, including the most recent acquisition of Chile’s Cosmetica Nacional. As much as 38 percent of the company’s sales came from outside India in the year ended March.

Asia, Africa and South America hold the most promise for buyouts in areas including hair care and household products, according to Godrej. “We wouldn’t look at the developed world for acquisitions,” he said.

Indian companies will continue to look for overseas acquisitions even after the rupee weakened 17 percent against the dollar in the past 12 months, he said. The currency dropped to a record low of 54.30 per dollar in December.

“Usually the earning potential of our acquisitions in the developing world are dollar based,” Godrej said. “So if the rupee depreciates, the earnings also go up in rupee terms.”

Godrej, whose hobbies include waterskiing and climbing mountains, also took over as president of the Confederation of Indian Industry, the country’s largest business lobby group, in April.

With foreign investors pulling money out of India amid corruption scandals, tax disputes and a political stalemate that has prompted Standard & Poor’s warn of a downgrade of the country’s credit rating to junk status, Godrej said his aim will be to push for better interaction between business and the government to open up the economy and boost expansion.

“The main objective is to revive growth in India through reforms and governance,” Godrej said.

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