Citi raised target price of Godrej Consumer Products (GCPL) to Rs 1,955 (from Rs 1,640) following increase in target multiple and 2 percent increase in EPS estimates.
"Our implied target multiple works out to 37x FY19 (34x September 18 earlier) – brought closer to peers reflecting Godrej Consumer's improving outlook and possibly return profile," the brokerage house said.
GCPL is executing well in soft markets and benefits from its good position in relatively higher growth categories and channels. Strategies to increase market shares, penetration and new segments are driving a healthy business momentum.
That said, stock valuations reflect medium-term gains to a large extent; hence it maintained neutral rating on the stock.
According to the brokerage house, like peers, FY18 could be a better year for GCPL despite GST transition in India. It estimated double-digit constant currency growth for the company.
Management aims to maintain peak margins despite higher advertising & promotion. Margins have positively surprised in recent quarters despite the commodity environment.
Citi sees innovations as a key booster (around 35/20 percent of India/consolidated growth in last 5 years) with new formats/variants in India (non-mosquito HI, soap variants), Indonesia (12 launches in 12 months) and Africa.
Also, new segments are becoming meaningful, especially in India (10 percent of business); air fresheners may be emerging as the 4th major category for GCPL, now 4 percent / 7 percent of India / consolidated sales, it said.
In FY17, the company saw 12 percent increase in direct coverage in India and 17 percent distribution in Indonesia. Management talks of building digital capabilities; perhaps it is a little late versus peers but seems to be a key focus, it feels.
The research house said adverse forex and volatility in many countries remain concerns.
At 10:03 hours IST, the stock price was quoting at Rs 1,884.90, up Rs 2.60, or 0.14 percent on the BSE.
Posted by Sunil Shankar Matkar
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