Geographically diversified portfolio
International strategy delivering
on the promise; more to come
in the next two years
Action: Reiterate Buy on strong core business growth
GCPL has delivered strong operational performances both on the domestic
and international front over the past couple of years. We expect this
performance to continue in the medium term, with management focused on
delivering volume growth ahead of industry. International business is now a
substantial part of the portfolio, where the inorganic route has worked well for
GCPL. We reiterate our Buy rating with an increased target price of INR800,
on the back of increases in our earnings forecasts as well as P/E multiples.
We now value GCPL in line with the sector average, as we believe consistent
delivery should be rewarded with higher valuations.
Catalysts: Softening commodity costs and cross-pollination of
products from international portfolio
Softening commodity prices will have a positive impact on profitability for
GCPL. The impact in 1QFY13 was minimal, but we expect 2Q gross
margin performance to pick up. In the medium term, we believe there are
significant cross-pollination opportunities for the company to take parts of
the product portfolio to different geographies.
Valuation: GCPL trades at 23.3x FY14F EPS
GCPL trades at 23.3x FY14F EPS, which is lower than the sector
average. We believe that as company continues to deliver on its promise
of strong performance in international business, valuations will continue to
move ahead in the near term. We believe GCPL is one the best-placed
companies in the mid-cap space within the consumer sector, offering
investors exposure to a diversified portfolio mix across geographies.
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