Brokerages mixed on Godrej Consumer, but raised target post Q1 earnings beat estimates

Consolidated net revenue during the quarter rose 13.7 percent to Rs 2,476 crore. Earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 27.1 percent YoY to Rs 444.1 crore led by robust gross margin expansion. Meanwhile, margin expanded by 190 basis points to 17.9 percent YoY.

Domestic volume growth for the quarter stood at 14 percent against analyst estimates of around 10-12 percent growth.

"Consumer demand is improving and we expect this recovery to sustain going forward. We expect both urban and rural growth to improve, rural growth to outpace urban growth on the back of remonetisation and the settling down of the GST implementation," Nisaba Godrej, Executive Chairperson said.

At 11:24 hours IST, the stock price was quoting at Rs 1,293.45, down Rs 18.45, or 1.41 percent on the BSE.

Brokerage houses are mixed in their ratings as some have downgraded the stock due to high valuations and some retained ratings. But all brokerage houses raised target prices on the stock.

Brokerage: Kotak Institutional Equities | Rating: Sell | Target: Rs 1,100 | Return: (16%)

June quarter headline financials were broadly in-line with expectations as India business did well as expected while international business, however, saw another weak print.

Africa business performance was the key disappointment.

The research house downgraded to Sell from Reduce but raised target price to Rs 1,100 from Rs 1,020 following increase in EPS forecasts for FY2019-21 marginally.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 1,410 | Return: 7%

Credit Suisse has downgraded the stock to Neutral on stretched valuations and looked for a better entry point.

However, it upped its target price to Rs 1,410 from Rs 1,200 following increase in earnings estimates by 3-5 percent & target multiple to 44x June-2020 EPS.

Brokerage: Motilal Oswal | Rating: Neutral | Target: Rs 1,240 | Return: (5%)

At 46.1x Mar'20E EPS, the stock is richly valued. While earnings growth has been more consistent than FMCG peers, its pace has been coming off significantly.

With the company's exposure to various geographies, attendant currency risks and relatively low return on equity (early-20s), the research house believes the stock does not warrant a higher multiple. It maintained Neutral rating with a revised target price of Rs 1,240.

Brokerage: Macquarie | Rating: Outperform | Target: Rs 1,465 | Return: 12%

The company has successfully demonstrated capability to revive HI (household insecticides) segment by new launches. Hence, the research house believes the growth momentum in household insecticides will continue. "We are 7-9 percent ahead of consensus estimates for the next 2 years."

The global brokerage firm has maintained Outperform rating on the stock with increased target price at Rs 1,465 from Rs 1,285 per share earlier.

GUAM (Africa, US & Middle East) constant currency sales grew 5 percent YoY due to weakness in South Africa but margins affected due to higher input cost & upfront advertising & promotion investments.

Brokerage: Jefferies | Rating: Hold | Target: Rs 1,180 | Return: (10%)

Jefferies has maintained Hold rating on the stock with increased target price at Rs 1,180 from Rs 1,100 per share. It raised FY19/FY20 EPS estimates by 2-3 percent and believes margin expansion in India business beyond FY19 levels will be difficult.

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