Hold Godrej Consumer Products: Way2Wealth
Way2Wealth has recommended hold rating on Godrej Consumer Products (GCPL) in its November 6, 2012 research report. According to the research firm, Profitability is expected to improve as the company moves to premiumise its portfolio & implement cost synergies.
November 07, 2012 / 12:35 IST
Way2Wealth has recommended hold rating on Godrej Consumer Products (GCPL) in its November 6, 2012 research report. According to the research firm, Profitability is expected to improve as the company moves to premiumise its portfolio & implement cost synergies.
"GCPL, standalone net sales grew at 18.2% on the back of growth across all segments. All categories grew at faster than market. The soaps category volumes growth was at 24%. Hair colour category growth gained momentum with a 10% growth this quarter. Household insecticides grew at 3x the market pace growing at 27%+. Consolidated sales growth was driven by the integration of Darling Group & the Chilean acquisition. Currency also played a role in growth of the subsidiaries. Subsidiary sales went up from Rs 419 crs. to Rs 699 crs. Indonesia grew at 26% on a constant currency basis. This is on the back of success of Hit Magic Paper & new launches under the Mitu brand. Like-to like sales growth in Africa was in higher double digits YOY. Seasonally this is a weak quarter for LatAm &. Consolidated topline grew by 34.5% to Rs 1595 crs. Company’s focus on innovation, re-launches, & better supply chain has enabled the company to grow at faster than the market & continue leadership in its category.Profitability: Gross profit margins improved in the standalone operations on the back of cos effective sourcing of raw materials. Operating profit on a standalone basis grew by 19% to Rs 161 crs. Margins were stable at 18%. On a consolidated level EBIDTA grew by 24.05% to Rs 241 crs. Margins contracted from 16.3% to 15.1% this quarter. Margins were impacted by higher other expenses & staff costs. Other expenses were higher on account of higher sales promotion spend & staff cost because of higher cost nature at Chilean & Darling operations. Africa which was primarily a hair color business in Q2FY12 has now diversified with higher contribution from Darling a hair extension business. Hence margins are not comparable like to like. Margins to be better in H2 as it is seasonally a better period for the company.GCPL is present in 3 segments namely soaps, household insecticides & hair colours. In each of these segments the company is a market leader or at No. 2 position. The company has been continuously investing in its brands to gain ground over competition and has created super brands over the decade. The company’s 3x3 strategy (presence in 3 continents and 3 categories) shows its clear focus on using its strengths rather than diversifying into the unknown. Cross synergies from continents will enable growth across geographies and segments and help the company achieve its target of 20%+ topline growth for the next 2-3 years. The company initiated launch of insecticides in Africa with entry into Nigera this quarter.The company is on a healthy growth trajectory for the next few years on the back of its inorganic growth, cross launches across geographies, and product innovation. Profitability is expected to improve as the company moves to premiumise its portfolio & implement cost synergies. We like the vision of the management to grow the business while investing in emerging economies. It plans to focus on it 3 mainstay segments where it commands market leadership. At the current market price of Rs 688 the stock trades at 34x expected EPS of Rs 20. We recommend the investors to HOLD the stock," says Way2Wealth research report.Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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