Godrej Consumer Products
We downgrade GCPL from Overweight to Neutral on the back of a strong run up in price. Household
insecticides are doing well, with the industry growing following outbreaks of malaria and dengue fever in
the monsoon. Moreover, GCPL is taking market share due to its innovations such as “low smoke coil”
and “Goodnight Advanced”. However, we believe that this news is in the price and it makes growth in
FY12 more difficult due to a higher base.
The soaps business is suffering intense competition from HUL and ITC. While we believe that it should
turn around from the next quarter onwards (i.e. post growth rather than a decline), this is mainly due to a
base effect. Moreover, the price of palm oil, the main raw material for the soaps division, is moving up
and there could be some margin contraction in spite of the price increase. Given the competitive nature of
the industry, the price increase may be lower than required. The hair colour market is likely to see more
competition with the entry of new players Emami and possibly P&G. While this may not impact GCPL
immediately, it is not good news in the long term. We downgrade from Overweight to Neutral.
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