Motilal Oswal neutral on Godrej Consumer Products

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Motilal Oswal neutral on Godrej Consumer Products

Motilal Oswal has maintained neutral rating on Godrej Consumer Products with a target of Rs 428, in its January 24, 2012 research report.

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Motilal Oswal has maintained neutral rating on Godrej Consumer Products with a target of Rs 428, in its January 24, 2012 research report.

"Godrej Consumer's 3QFY12 consolidated results are above estimates with Adj PAT of INR1.67b (est INR1.42b), led by 290bp expansion in Cons EBITDA margin. India business reported sales of INR7.6b, up 24% YoY. EBITDA margin expanded 20bp YoY. Adj PAT grew only 14% due to forex loss of INR75m, higher interest cost and 120bp higher tax rate. International business reported sales of INR5.7b, up 68% YoY. EBIDTA margin expanded 670bp YoY to 21%. PAT grew 254% YoY to INR490m. GCPL has announced acquisition of 60% stake in Cosmetica Nacional of Chile at 9x EV/EBITDA. It has sales of USD36m (2011) with EBIDTA margin of 20%. Acquisition cost is ~USD40m which will be funded by low cost overseas debt. GCPL has announced that Baytree Investments (100% sub of Temasek) will acquire 16.7m shares (~5% of capital) in a preferential allotment at INR409/share aggregating to INR6.8b."

"We believe 38% EBIDTA margin in Darling Group holdings, double the management guidance of 20%, is unsustainable; high debt levels in a fluctuating forex environment remains a key risk. We revise our estimates upwards by 2-3% for FY12-13 to factor 1) Higher revenue growth in soaps 2) Higher margins in Darling business 3) The acquisition of Cosmetica Nacional 4) preferential allotment to Temasek and resultant equity dilution. The stock trades at 24xFY12E EPS of INR17.2 and 19xFY13E EPS of INR21.9. Neutral with a revised target price of INR 428," says Motilal Oswal research report.

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To read the full report click on the attachment