Hold Godrej Consumer Products, says Ventura
Ventura has recommended hold rating on Godrej Consumer Products, in its May 03, 2013 research report. The research firm expects, the company to post robust set of numbers in its domestic business going ahead on the back of new launches and increased A&P spends, continued distribution synergies and its focus in crÃ¨me format.
Ventura has recommended hold rating on Godrej Consumer Products (GCPL), in its May 03, 2013 research report. The research firm expects, the company to post robust set of numbers in its domestic business going ahead on the back of new launches and increased A&P spends, continued distribution synergies and its focus in crème format.
During the quarter, GCPL launched a disruptive innovation in HI category (HIT Anti Roach Gel). Moreover, Godrej Consumer Products Ltd (GCPL) has displayed its consistency by clocking double digit revenue growth. We expect GCPL to post robust set of numbers in its domestic business going ahead on the back of new launches and increased A&P spends, continued distribution synergies and its focus in crème format (under hair colours category). In the international business, integration of operations in Africa and Argentina is expected to bring synergies over the next few quarters. Also, we remain positive on the Indonesian operations on the back of regular innovations and distribution expansions.
Given the fact that GCPL has a large number of brands under its umbrella (across emerging market geographies), we expect cross-pollination to play out over the next 2-3 years and add further scale to GCPL’s operations. At a CMP of Rs 844, GCPL trades at a PE multiple of 33.0x and 28.1x its estimated earnings for FY14 and FY15. Given the rich valuations enjoyed by the company and limited upside from current levels, we recommend a HOLD on the stock. However, owing to the robust long term outlook for the company we recommend to add the stock on declines with a potential target of Rs 900.
GCPL continued its strong growth momentum during Q4FY13 by recording 29.7 percent YoY growth in revenues to Rs 1,715.5 crore led by robust 18.1 percent YoY growth in its domestic business (HI – 26 percent YoY; Soaps – 17 percent YoY with volume growth of ~4 percent and Hair Colors – 27 percent YoY), which contributes ~55 percent to its consolidated revenues. Increased other expenses (+50.8 percent YoY) and higher A&P expenses (+9.5 percent of sales v/s 8.3 percent in Q4FY12) led to a contraction of GCPL’s EBITDA margins to 16.2 percent (-260 bps YoY; -60 bps QoQ). While EBITDA grew by 12.2 percent YoY, PAT grew by 70 percent YoY on account of exceptional income of Rs 133.7 crore (sale of non-core food business in Indonesia) and lower provision for tax (-11.7 percent YoY).
As stated earlier, domestic business grew by 18.1 percent YoY led by robust growth in all its key segments - Home Insecticides (+26 percent YoY; ~2.1x category growth), Personal Wash – Soaps (+17 percent; ~1.3x category growth) and Hair Colors (+27 percent; 2x category growth). Household Insecticides segment witnessed growth on the back of continued distribution synergy benefits and we expect this category to maintain healthy growth on the back of penetration and new innovative launches (latest launch being ‘HIT Anti Roach Gel’). On the other hand, GCPL’s soaps segment witnessed growth of 17 percent YoY primarily led by volume. The highlight for the quarter was Hair colors category as it witnessed strong turnaround (27 percent v/s 13 percent category growth; albeit on a low base) on the back of positive response from crème format (recent entry)," says Ventura research report.
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