Motilal Oswal neutral on Godrej Consumer

Motilal Oswal has maintained neutral rating on Godrej Consumer Products (GCPL) with a target of Rs 740, in its October 8, 2012 research report.

“GCPL’s strong run in HI market in India (44 % of domestic sales) continues unabated. Our analysis of the latest industry data points to continued share gains for GCPL (310bp market share gain during Dec 2011-Aug 2012). It is gaining share in every sub-segment of the HI category and improving its mix. We expect GCPL’s outperformance to continue on the back of (1) distribution synergies, (2) innovation, and (3) sustained brand spends. GCPL’s Soaps market share has remained flat for the last 12 months, but has started to pick up in last four months (Godrej No 1 up 40bp post Apr-12). The recent relaunch of Cinthol (with 10% price hike) should help boost GCPL’s Soaps performance, in our view. Channel checks indicate continued momentum in GCPL’s Soaps business in 2QFY13.”

“Softening of palm oil prices (down 23% in last 6 months in INR terms) is a positive for GCPL’s gross margins as palm oil is 20% of GCPL’s RMC. However, we expect the gains to flow in with a lag of 1-2 quarters, and also part passing-on of the cost savings via promotions. Recent currency appreciation is an additional positive given GCPL's USD 305m debt. We expect strong momentum to continue in GCPL’s international business led by Megasari (50% of international sales) and consolidation of Darling business. GCPL has demonstrated strong execution potential in the integration of its recently acquired businesses. Significant cross pollination potential still exists in categories like Hair Colors and HI, and successful execution of the same will be a key driver in the medium term.”

“We upgrade our FY13 and FY14 earnings estimates by 3-8% to factor in (a) market share gains in Home Insecticides, (b) softening of PFAD prices, and (c) margin improvements in international business in FY14 due to scale economies post integration. We now expect 32% EPS CAGR over FY12-14. Consequently, we revise our target price to INR740 (26x FY14E EPS). Maintain neutral,” says Motilal Oswal research report.

Public holding more than 90% in Indian cos

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