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Balanced portfolio enhances appeal
Acquisitions leading the way –
FY12F and FY13F to outperform
peers; upgrade to BUY
July 21, 2011
Rating
Up from Neutral
Buy
Target price
Increased from 419
INR 524
Closing price
July 19, 2011
INR 440
Potential upside
+19.1%
Action: Upgrading to BUY, lifting TP to INR524
We upgrade GCPL to BUY, from Neutral, with an increased target price of
INR524 (19% potential upside). Three key reasons drive our upgrade:
1) underperformance of the stock vs peers and the FMCG index; 2) we
believe that performance of recent acquisitions is under-appreciated; and
3) the stock’s 27% discount to the sector is not justified, in our view.
Catalysts: Falling palm oil, realisation of cost synergies
We highlight two key triggers: 1) with domestic soaps accounting for ~20%
of the revenues, GCPL is likely to be a key beneficiary of falling palm oil
prices; and 2) with the first year of integration of acquisitions now
complete, GCPL is likely to benefit from delivery of synergies over the next
couple of years, in our view. The company is targeting revenue synergies
on the order of INR15-20bn over the next five years.
3x3 strategy yielding benefits, a more robust and balanced portfolio
We believe GCPL’s 3x3 strategy means the company now has a more
balanced portfolio than when it was viewed as a single-product company a
few years back. This, we believe, will ensure a longer-term re-rating
toward the consumer average.
Valuations: discount unwarranted; switch from Marico and HUVR
GCPL is trading at 18.8x FY13F earnings and is now at a 27% discount to
the domestic HPC average. We believe this discount is unwarranted and
advise investors to switch from Marico (MRCO IN, INR160.6, REDUCE)
and HUVR (HUVR IN, INR331, REDUCE) into GCPL
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Balanced portfolio enhances appeal
Acquisitions leading the way –
FY12F and FY13F to outperform
peers; upgrade to BUY
July 21, 2011
Rating
Up from Neutral
Buy
Target price
Increased from 419
INR 524
Closing price
July 19, 2011
INR 440
Potential upside
+19.1%
Action: Upgrading to BUY, lifting TP to INR524
We upgrade GCPL to BUY, from Neutral, with an increased target price of
INR524 (19% potential upside). Three key reasons drive our upgrade:
1) underperformance of the stock vs peers and the FMCG index; 2) we
believe that performance of recent acquisitions is under-appreciated; and
3) the stock’s 27% discount to the sector is not justified, in our view.
Catalysts: Falling palm oil, realisation of cost synergies
We highlight two key triggers: 1) with domestic soaps accounting for ~20%
of the revenues, GCPL is likely to be a key beneficiary of falling palm oil
prices; and 2) with the first year of integration of acquisitions now
complete, GCPL is likely to benefit from delivery of synergies over the next
couple of years, in our view. The company is targeting revenue synergies
on the order of INR15-20bn over the next five years.
3x3 strategy yielding benefits, a more robust and balanced portfolio
We believe GCPL’s 3x3 strategy means the company now has a more
balanced portfolio than when it was viewed as a single-product company a
few years back. This, we believe, will ensure a longer-term re-rating
toward the consumer average.
Valuations: discount unwarranted; switch from Marico and HUVR
GCPL is trading at 18.8x FY13F earnings and is now at a 27% discount to
the domestic HPC average. We believe this discount is unwarranted and
advise investors to switch from Marico (MRCO IN, INR160.6, REDUCE)
and HUVR (HUVR IN, INR331, REDUCE) into GCPL
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