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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