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UBS Investment Research
Godrej Consumer Products
International acquisitions to fire
[ EXTRACT]
Upside from international acquisitions
We maintain our Buy rating on Godrej Consumer Products (GCPL) as we think
there is potential upside to our earnings estimates as the company begins to benefit
from cost synergies and scale efficiencies arising from its June 2011 acquisition of
the Darling Group. A good distribution network will provide GCPL the platform to
quickly introduce its products in African markets.
ROE dilution near term
ROE has declined from 79% in FY02 to 28% in FY11. This is due to a decline in
asset turnover. ROE improved until FY05 but has steadily declined since FY06.
Currency risk remains an overhang
With US-dollar denominated debt taken for the Darling Group acquisition and the
recent depreciation of the Indian rupee, the risk of exchange rate fluctuation is high
for GCPL. GCPL’s foreign debt is not hedged and its total forex exposure as at 31
March 2011 was US$350m.
Valuation: maintain Buy rating and Rs500.00 price target
We derive our price target from a sum-of-the-parts analysis of each business.
Godrej Consumer Products
Godrej Consumer Products (GCPL) focuses on home care, hair care and
personal wash products in Asia, Africa and Latin America. In FY10, personal
wash was its largest revenue contributor at 41%, while hair care and home care
contributed 20% each. Following the GHPL and Megasari acquisitions,
homecare contributed 9% of total revenue in Q1 FY11, while personal wash and
hair care contributed 33% and 18%, respectively. GCPL's FY10 turnover was
US$443m, of which US$365m was from domestic operations (including GHPL)
and the remaining US$79m from international operations.
Statement of Risk
We think the key risks to our earnings forecasts and valuation include
intensifying competition, increasing raw material costs and slowing economic
growth. With its expansion in international markets the company also has
exposure to multiple country and currency risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Godrej Consumer Products
International acquisitions to fire
[ EXTRACT]
Upside from international acquisitions
We maintain our Buy rating on Godrej Consumer Products (GCPL) as we think
there is potential upside to our earnings estimates as the company begins to benefit
from cost synergies and scale efficiencies arising from its June 2011 acquisition of
the Darling Group. A good distribution network will provide GCPL the platform to
quickly introduce its products in African markets.
ROE dilution near term
ROE has declined from 79% in FY02 to 28% in FY11. This is due to a decline in
asset turnover. ROE improved until FY05 but has steadily declined since FY06.
Currency risk remains an overhang
With US-dollar denominated debt taken for the Darling Group acquisition and the
recent depreciation of the Indian rupee, the risk of exchange rate fluctuation is high
for GCPL. GCPL’s foreign debt is not hedged and its total forex exposure as at 31
March 2011 was US$350m.
Valuation: maintain Buy rating and Rs500.00 price target
We derive our price target from a sum-of-the-parts analysis of each business.
Godrej Consumer Products
Godrej Consumer Products (GCPL) focuses on home care, hair care and
personal wash products in Asia, Africa and Latin America. In FY10, personal
wash was its largest revenue contributor at 41%, while hair care and home care
contributed 20% each. Following the GHPL and Megasari acquisitions,
homecare contributed 9% of total revenue in Q1 FY11, while personal wash and
hair care contributed 33% and 18%, respectively. GCPL's FY10 turnover was
US$443m, of which US$365m was from domestic operations (including GHPL)
and the remaining US$79m from international operations.
Statement of Risk
We think the key risks to our earnings forecasts and valuation include
intensifying competition, increasing raw material costs and slowing economic
growth. With its expansion in international markets the company also has
exposure to multiple country and currency risks.
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