Motilal Oswal neutral on GCPL; target Rs 800

Motilal Oswal has maintained a neutral rating on Godrej Consumer Products (GCPL) with a target price of Rs 800, in its February 01, 2013 research report.

(GCPL) consolidated results for 3QFY13 were below expectations. Sales grew 26% to INR16.9b (est of INR17.6b), EBITDA margin declined 310bp to 16.6% (est of 19.3%), while adjusted PAT grew 3% to INR1.7b (est of INR2.18b). Consolidated organic sales growth of 19% was driven by household insecticides (HI), toilet soaps and Megasari, which posted a growth of 28%, 20% and 30%, respectively. Standalone sales grew 20% to INR9.2b. International business grew 34% (16% organic), led by Megasari and integration of Darling and Chile business.

Gross profit grew 31% to INR9.3b, with margin expanding 200bp on account of correction in palm oil prices as well as product price hikes. However, EBITDA margin declined 310bp to 16.6%, led by higher ad spends (up 400bp) and other expenses (up 170bp). Standalone gross margin expanded 250bp and EBITDA margin declined 260bp to 16.4%. While Soap volumes grew 2%, Hair Colors and HI posted 17% and 27% growth, respectively, led by continued brand spends and good traction in new launches in Hair Colors. HI volumes were up 23-24%. International sales grew 34% to INR7.58b, driven by 16% organic growth. EBITDA grew 4.5% and EBITDA margin declined 490bp to 16.2%.

We cut our earnings estimate by ~7% for FY13 to incorporate the lower than expected EBITDA for the quarter. While we expect margins to improve in 4Q, 190bp EBITDA margin contraction in 9M precludes our earlier forecast of flat margins for FY13. The stock trades at 26.6x FY14E EPS of INR26.6 and 21.8x FY15E EPS of INR32.5. We like GCPL's sustained share gains in HI category in India and its continued robust performance in Indonesia (45% of international business). As expected, the decline in PFAD prices is providing a tailwind. However, valuations reflect the positives, in our view. Maintain Neutral with a target price of INR800 (25x FY15E EPS)," says Motilal Oswal research eport.

Public holding more than 90% in Indian cos

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