Godrej Consumer share price climbs 3% after CLSA upgrades rating, raises target on Q2 earnings

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Shares of Godrej Consumer Products rallied more than 3 percent intraday on November 7 after global brokerage firm CLSA had upgraded its rating on the stock to buy from underperform.

The research house also raised target price on the stock by 29 percent to Rs 900 from Rs 700 per share earlier, implying 21.4 percent potential upside from current levels.

The stock was quoting at Rs 746.75, up Rs 5.15, or 0.69 percent on the BSE at 10:45 hours IST.

"The focus on growth and launches is a step in the right direction," said the brokerage which cut its EPS estimates by 1-5 percent as it lowered growth forecast for FY20.

"The focus on product launches could start a virtuous cycle of growth," it added.

Godrej Consumer's Q2FY20 result was in line with muted expectations but a tad lower in quality as the operating profit delivery was helped by a rather sharp 22 percent cut in ad-spends in the India business, said JM Financial which has a buy call on the stock with a target at Rs 815, implying 10 percent potential upside from current levels.

"Admittedly, though, the savings therefrom (cut in advertising spend) must have been used to fund the promotions and offers that helped deliver the strong volume growth of 7 percent. As a result, revenue trajectory in India remained muted in the -1 percent to +1 percent range despite an increased volume growth trajectory," the brokerage added.

The international revenue trajectory also decelerated to 7 percent (in constant currency) against 9-10 percent seen over past three quarters as Africa revenue declined 2 percent (constant currency basis).

With the stock having clocked a 22 percent gain over the past two months, the valuation (41 NTM EPS) is no longer as compelling as they were a few months back, said JM Financial which expects the stock to be more rangebound here onwards and feels further gains would now be contingent upon a decisive improvement in consolidated revenue trajectory, which may be more gradual.

The FMCG company reported a steep 28.4 percent year-on-year (YoY) decline in the second quarter's consolidated profit at Rs 413.88 crore and 1.14 percent decline in revenue at Rs 2,630.2 crore YoY.

The operating performance of the company remained strong as earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 17.5 percent YoY to Rs 571.9 crore and margin expanded 340 bps to 21.7 percent in the quarter ended in September.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.