Godrej Consumer Products shares fell nearly 7 percent in the morning on January 30 as brokerage houses cut their earnings estimates after the company reported a weak set of earnings for the quarter ended December 2018.
The stock was quoting at Rs 707.00, down Rs 50.30, or 6.64 percent on the BSE at 1019 hours IST.
Global investment firm CLSA, which maintained underperform rating on the stock and slashed price target to Rs 800 from Rs 835 earlier, said the disappointment in Q3 was primarily led by weak revenue growth.
It believes the company will take time to show results. Hence, the research house slashed EPS estimates by 5-7 percent over FY20-21 and believes the stock will remain rangebound.
Credit Suisse also said Q3 results were weak on all fronts, with adjusted PAT declining 3 percent YoY. "Home insecticides business is a big concern as it continues to lag for 9 quarters now and international business continues to be under pressure."
Latin America business will continue to hit company's net profit for the next couple of quarters, the research house said.
While maintaining neutral call on the stock with a price target at Rs 750, Credit Suisse cut its FY19-21 earnings estimates by 4-6 percent.
Godrej Consumer's Q3 consolidated net sales (including OOI) grew 3.5 percent YoY and comparable net sales (adjusting for divestment of Europe business) grew 7 percent YoY. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) increased 2.9 percent YoY.
Soaps segment grew 2 percent YoY while household insecticides (HI) and the hair colour business remained flat for the quarter.
Management attributed the subdued performance in soap and hair colour to a high base, while HI was impacted by unfavourable season in South India and share of growth shifting towards incense sticks.
Gross margin was down 90bp YoY. Lower advertising spends and staff costs were offset by an increase in other expenses. This led to EBITDA margin contraction of 10bp YoY to 22.6 percent in Q3.
Motilal Oswal maintained neutral rating on the stock with a revised price target at Rs 805 and cut EPS estimates by 3.2/2.3 percent for FY19/FY20. "The stock is not undervalued, particularly as earnings growth (earlier more consistent than FMCG peers) has come off over the last couple of years."
In addition, company's exposure to various geographies, attendant currency risks and relatively lower RoE (early-20’s) compared to peers demands a check on target multiples, it feels.
Macquarie also slashed FY19-21 earnings estimates by over 2-3 percent on lower volume assumptions, though it has outperform call on the stock and raised price target to Rs 952 from Rs 907 as it feels the recent underperformance provides a good entry point.
The global investment firm expects growth run-rate to improve meaningfully both in India and international business. "Recovery in home insecticides business hinges on the success of Power Activ+ refill," it added.
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