Accumulate Godrej Consumer; target Rs 465: Dolat Capital

“Godrej Consumer’s (GCPL) consolidated Q3FY12 results were above estimate. Revenue, at Rs 13.4bn, was up 37% YoY. EBITDA at Rs 7.2bn was up 58% YoY as margins expanded by 212bps YoY. PAT, at Rs 1.67bn, was up 41.3% YoY. Performance was strong across all business segments. Domestic business growth was led by strong growth in Personal Care (volume growth of 19%) and Household Insecticides at around 30% coupled with improvement in operating performance. After four consecutive quarter of margin decline, Q3FY12 marked a trend reversal as EBITDA margins expanded by 22bps YoY and 139bps QoQ to 19%. Price hike coupled with mix improvement resulted in sharp increase in operating margin. Only disappointment was Hair Color which grew by 9% YoY.”

“International business reported a strong growth of 66% YoY (including Darling) and 30% organic growth. Adjusted for currency translation the organic growth in international business stood at 18-19% YoY. International business operating performance witnessed sharp improvement with 20% EBITDA margins led by Darling operating performance. During the quarter the company acquired a Hair colorant and cosmetic company “Cosmetica Nacional” in Chile. The company has clocked revenue of Rs1.8bn and GCPL will acquire 60% stake in the company for Rs1.9bn (valuing at 9x EV/EBITDA and 1.76x sales). Temasek will subscribe to 16.7mn preferential allotment (4.9% stake) for a total consideration of Rs 6.85bn (Rs 410/share) in GCPL. This will enable the company to reduce its D/E ratio.”

“We remain positive on the rapidly growing household insecticides business. We believe this segment remains the key growth driver for GCPL. The debt-equity ratio for GCPL is expected to improve with infusion of funds from Temasek. We have revised our estimate by factor in recent acquisition and equity dilution and have also introduced FY14 estimate. We believe rising share of international business in the total revenue would (42% of sales) remain a key concern. We recommend an Accumulate rating with a price target of Rs 465 (18x FY14E EPS – Rs 25.9),” says Dolat Capital research report.

Institutional holding more than 40% in Indian cos

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