Buy Godrej Consumer; target of Rs 174: Angel

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Broking house, Angel Broking is bullish on Godrej Consumer Product  and has recommended buy rating on the stock with a 12-month target of Rs 174.

 

Angel Broking report on Godrej Consumer Product:

 

This 'Soap' continues to be an interesting story

 

GCPL has significantly underperformed the broader indices over the past several months due to margin pressures. However, we estimate GCPL to witness stability in margins owing to better product mix, recent price hikes and higher fiscal benefits. At current levels, GCPL is a strong value play in the FMCG space with superior return ratios, steady earnings growth and a dividend yield of 3%.   

 

In Soaps, clear strategy to grow through marketshare gains:

 

Soaps accounted for 51% of the branded sales and 29% of PBIT (consolidated) during FY2007. Innovative launches coupled with strong promotional support and suitable price points have helped GCPL consistently meet its target of gaining 100bp marketshare every year. We expect GCPL's Soaps division to grow at a CAGR of 19.6% over FY2007-09E.   

 

Huge potential to be unlocked in Toiletries segment:

 

Toiletries is expected to remain one of the key growth drivers for GCPL. Better product mix, higher promotional expenses, innovative launches in existing and new segments along with higher contribution of Keyline brands and SCA Hygiene JV are expected to drive growth in this category. We expect the category to grow at a CAGR of 37.5% (standalone) and 18% (consolidated) over FY2007-09E.   

 

Inorganic growth strategy to boost growth:

 

GCPL has adopted the inorganic route to boost growth with a major focus on the Personal Care segment. Synergies in GCPL's domestic business model and international operations will be the key driving force for growth in Keyline and Rapidol. We expect Keyline and Rapidol to account for 15.5% and 4.8% of topline and 11.3% and 3.7% of PBIT respectively, at the consolidated level, for FY2009E.

 

Valuation

 

We expect GCPL's revenues to grow at a CAGR of 18.6% to Rs1,340cr and earnings to grow at a CAGR of 19% to Rs190cr over FY2007-09E. We have used the DCF methodology to value the company. Our Target Price based on FY2009E numbers works out to Rs 174 at which the stock would trade at 20.7x Earnings and 16.3x EV/EBITDA. We initiate coverage on GCPL with a Buy recommendation.