Hold Godrej Consumer: PPFAS Research

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Hold Godrej Consumer: PPFAS Research

Parag Parikh Financial Advisory Services (PPFAS) has recommended hold rating on Godrej Consumer Products, in its January 24, 2012 research report.

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Parag Parikh Financial Advisory Services (PPFAS) has recommended hold rating on Godrej Consumer Products , in its January 24, 2012 research report.

"Godrej Consumer Products Ltd (GCPL) reported a strong set of numbers for the quarter ending December 2011. On a quarterly consolidated basis, Y-o-Y, the company registered a topline growth of 36% from Rs 9,887.9 Mn to Rs13,440.6 Mn. The numbers are not comparable because of the acquisitions during the course of last 12 months. At the domestic level, the household insecticides and soaps business continued to grow well while hair care faced some slowdown in growth. Household insecticides sales have grown by 30%. Most of this was volume led. Domestic soaps business grew by 31% over Q3FY11. 19% of this was volume-led. Hair Colors business however grew in single digits, by 9%, and far behind category growth. The Indonesian business (Megasari Group) continued its impressive performance. Sales grew by 35% (20% in local currency). EBITDA stood at 20.6% with Revenues of Rs 2,500 Mn. Business did well in Africa, Latin America and UK too. Africa registered sales of Rs1,860 Mn. This includes the consolidated part of Darling business as well. Overall EBITDA (Africa) too improved to 31%. This must be attributed to the Darling business which operates with high margins. Sales in Latin America grew by 29% to Rs 820 mn while those in Europe (UK) grew by 43% to Rs 430 Mn."

"International business now accounts for about 45% of the Total Sales. Overall Expenditure has been lower than the sales growth. Operating Profits were up by 60% at Rs 2,652.7 Mn as compared to the same period last year. Forex impact and interest costs continued to be high. Forex impact would have been higher still. However the Company adopted the notification to amortize forex impact and thus reduce the impact to profits to some extent. Consolidated PAT increased by 40% at Rs 1,671 Mn. EPS stood at Rs 5.2. GCPL made another acquisition this quarter in Chile, Latin America. It acquired a 60% stake in Cosmetica Nacional, a hair colorants and cosmetics company. This company had CY11 sales of $36 Mn and an EBITDA of $7.3 Mn. The Company is a market leader in the hair colors segment in Chile and ranked no 2 in color cosmetics. Also, GCPL has diluted equity this quarter through preferential issue of shares to a subsidiary of Temasek from Singapore. The Company issued shares worth Rs 6,850 Mn at a price of Rs 410 per share (about 5% dilution)."

"The company has declared an interim dividend of Rs 1. At the CMP of Rs 410.6, GCPL trades at a PE(TTM) of 19.7 times. Excluding the one time exceptional gain during the first quarter, adjusted PE however would be in excess of 24. With the dilution to Temasek, this multiple would become still higher. Growing revenues and profits are always soothing for the eyes. However when the same is being managed through equity dilution, one needs to be more cautious. Also, GCPL has been adding on foreign debt which exposes the Company to forex risk (when not hedged). Most of this debt is with longer maturities and hence the short term volatility in exchange rates should only make a notional impact. However risk remains if the Rupee were to stay depreciated for longer durations. The management has indicated that they will not let the debt equity ratio go beyond 1 except in certain short term scenarios. On the whole, the standalone business has been growing fairly well and the major international acquisitions also seem to be doing okay. Recommend a 'Hold' for now," says Parag Parikh Financial Advisory Services research report.  

Non-Institutions holding more than 90% in Indian cos

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