Hold Godrej Consumer Products: Way2Wealth

Way2Wealth has recommended hold rating on Godrej Consumer Products (GCPL) in its August 9, 2012 research report.

“Godrej Consumer, Standalone net sales grew at 21.3% on the back of growth across all segments. All categories grew at faster than market. This is the strongest quarter for personal wash & weakest for household insecticides. The soaps category volumes growth was at 24%. Hair colour category continued to disappoint with a mere 5% growth. 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 360 crs to Rs 603 crs. Indonesia grew at 25% 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 at 12% YOY. Seasonally this is the weakest quarter for LatAm. Consolidated topline grew by 39% to Rs1388.6 crs.”

“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 24.3% to `128 crs. Margins were stable at 16.5%. On a consolidated level EBIDTA grew by 42% to `208 crs. Margins saw a slight improvement from 14.6% to 15% this quarter. EBIDTA margins expanded across geographies except Europe. Depreciating rupee had an adverse forex impact. On the standalone level the company saw a forex loss of Rs 11 crs on account of net payables. The company has started to follow governments Dec 2011 notification and started amortization of forex impacts. The total forex impact including MTM stood at Rs 18 crs on a consolidated level. PAT grew by 27.2% to Rs130.5 crs on a consolidated level.”

“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 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. At the current market price of Rs 617 the stock trades at 28x expected EPS of Rs 22. We recommend the investors to hold the stock,” says Way2Wealth research report.

FIIs holding more than 30% in Indian cos

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