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Godrej Consumer Products
Recent fall a good buying opportunity
We met GCPL management. Following are key takeaways
Competitive and RM pressure continues in Soaps: Though 3QFY11 saw Soaps
returning to positive sales growth after double digit decline in 1Q and 2Q,
competitive onslaught from ITC and HUVR as indeed the higher RM prices
continue to act as pressure points. GCPL is covered till April on palm oil but if
prices continue to remain at current levels, it may need another round of price
hike in Soaps. In Hair Colors, management believes volume growth should
return starting 4QFY11 once the impact of 10% price hikes in Expert is absorbed
by the trade. However tertiary off‐take in Hair Colors continues to remain
strong. GCPL has several initiatives lined up for next two quarters in Hair Colors.
Innovations and distribution expansion to drive GHPL : GHPL which has posted
~30% YoY growth in 9MFY11 on full base will benefit from various innovative
launches done in past 12 months, distribution expansion post integration with
GCPL and structural change in habits wherein use of house‐hold insecticide is
becoming a regular habit as against prevalent trend of seasonal usage. This is
owing to preventive care and growing awareness of health hygiene. RM for this
category has remained benign so far. In International division, Megasari is
expected to post 15% sales cagr with sustained margins, while African business
witnesses some moderation owing to slower growth in South Africa. Keyline will
continue to report mid‐single digit growth rates.
Tweak estimates, maintain BUY: We tweak our earnings estimates lower by
~2‐3% to factor in higher brand building spends in GHPL as well as international
business. We are reducing our target P/E multiple to 21x against earlier P/E of
23x to factor in the growing significance of International business where
margins and capital return ratios are lower compared to Indian business. We
maintain our BUY rating but revise our TP to Rs430, an upside of 22.5%. After
11% underperformance in 3 months, current valuations look attractive.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godrej Consumer Products
Recent fall a good buying opportunity
We met GCPL management. Following are key takeaways
Competitive and RM pressure continues in Soaps: Though 3QFY11 saw Soaps
returning to positive sales growth after double digit decline in 1Q and 2Q,
competitive onslaught from ITC and HUVR as indeed the higher RM prices
continue to act as pressure points. GCPL is covered till April on palm oil but if
prices continue to remain at current levels, it may need another round of price
hike in Soaps. In Hair Colors, management believes volume growth should
return starting 4QFY11 once the impact of 10% price hikes in Expert is absorbed
by the trade. However tertiary off‐take in Hair Colors continues to remain
strong. GCPL has several initiatives lined up for next two quarters in Hair Colors.
Innovations and distribution expansion to drive GHPL : GHPL which has posted
~30% YoY growth in 9MFY11 on full base will benefit from various innovative
launches done in past 12 months, distribution expansion post integration with
GCPL and structural change in habits wherein use of house‐hold insecticide is
becoming a regular habit as against prevalent trend of seasonal usage. This is
owing to preventive care and growing awareness of health hygiene. RM for this
category has remained benign so far. In International division, Megasari is
expected to post 15% sales cagr with sustained margins, while African business
witnesses some moderation owing to slower growth in South Africa. Keyline will
continue to report mid‐single digit growth rates.
Tweak estimates, maintain BUY: We tweak our earnings estimates lower by
~2‐3% to factor in higher brand building spends in GHPL as well as international
business. We are reducing our target P/E multiple to 21x against earlier P/E of
23x to factor in the growing significance of International business where
margins and capital return ratios are lower compared to Indian business. We
maintain our BUY rating but revise our TP to Rs430, an upside of 22.5%. After
11% underperformance in 3 months, current valuations look attractive.
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