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Godrej Consumer tumbles 5% after Q2 margins disappoint

Shares of Godrej Consumer Products plunged over 5 percent on Monday post its second quarter results, which were below some analysts expectations. Margin contraction in particular was a key concern, and analysts say given the stock is already trading at high valuations, there is limited room for earnings disappointment.

November 05, 2012 / 04:08 PM IST
 
 
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Moneycontrol Bureau


Shares of Godrej Consumer Products plunged over 5 percent on Monday post its second quarter results, which were below some analysts expectations. Margin contraction in particular was a key concern, and analysts say given the stock is already trading at high valuations, there is limited room for earnings disappointment.


"GCPL's Q2 net sales/EBITDA/adjusted profit after tax grew below estimates on higher advertising and promotion (A&P) costs domestically and margin pressure in the international business. We believe business growth momentum could see some moderation in the domestic (soaps, home insecticides) and international (lack of currency tailwind) businesses, which could strain GCPL given rich valuations (32.9 times/27 times FY13/FY14 P/E)," said Varun Lohchab, Gaurang Kakkad and Prasad Dhake of Religare Institutional Research.


Apart from higher ad spends, staff costs also increased and dip in other expenditure was lower than expected, and that hurt operating profit margin by 120 bps year-on-year, said Anand Shah of Elara Capital. He had expected GCPL's margin would expand 120 bps last quarter.


Elara Capital advises investors "reduce" GCPL shares and has a target price of Rs 706 on the stock. Religare has a "hold" rating on the stock, with a target price of Rs 660.


Godrej Consumer shares were down 4.6 percent at Rs 691.50 on NSE in noon trade.

Meanwhile, Godrej Consumer on Monday named Vivek Gambhir, currently the chief strategy officer of Godrej Industries and associated companies, as the successor to A Mahendran, who will retire as managing director on June 30, 2013.

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