Wednesday, January 27, 2010

Godrej Consumer Hold, Target Price: Rs 246

Godrej Consumer Products

 

Fall of Cliff, Upgrade to 'HOLD'


HOLD

 

CMP: Rs 247                                  Target Price: Rs 246


GCPL reported impressive performance in Q3FY10 - with – (1) 53.3% yoy growth in revenues to Rs5.2 bn – in line with estimates (2) operating profit grew 131.2% yoy to Rs1.0 bn – ahead of our estimate and (3) 112.5% yoy growth in APAT to Rs851 mn – ahead of our estimates. The strong performance is attributed to (1) 16.2% YoY growth in the domestic business to Rs3.2 bn- 13-14% volume led and 2-3% price led (2) 23.2% YoY growth in the international business to Rs816 mn- led by African business of Kinky Pty and Rapidol Pty and (3) Rs1.2 bn contribution from Godrej Sara Lee – on account of consolidation.

Post Q2FY10 results and hoopla surrounding the acquisition of Sara Lee business - the wind has settled. GCPL has fallen off the cliff - now trading at Rs247/Share versus its all-time high of Rs303.8/Share. The stock has corrected by 19% in last 3 months from Rs280/Share (@ Q2FY10 results) to Rs247/Share- since we downgraded the rating from 'ACCUMULATE' to 'REDUCE' rating. With valuations being more comforting at 20.1X FY11E earnings against rich valuations during Q2FY0 and probable upsides from corporate actions- we upgrade the rating from 'REDUCE' to 'HOLD' with revised price target of Rs246/Share (against Rs230/Share earlier)- discounting at 20.0X FY11E earnings.

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Safe Harbor:

The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
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