Godrej Consumer - Exporting growth; visit note; Buy :: Edelweiss PDF link

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Godrej Consumer (GCPL IN, INR 483, Buy)

We met Mr. Shashank Sinha, President, International Business Division, and Mr. Sameer Shah, General Manager, Godrej Consumer (GCPL), as the company is betting big on its international business (contributed 42.1% to overall business in Q3FY12), which posted 30% organic growth in Q3FY12 (~20% in constant currency terms). GCPL will complete the second and third phases of DGH acquisition by September 2012 and September 2013, respectively, and help increase GCPL’s stronghold in Africa. Raising INR6.85bn from Temasek will ease D/E pressure. Maintain ‘BUY’.

Beach heads to adjoining markets will drive organic growth

Easy flow of goods within countries of a trade block where regional barriers to trade are eliminated will aid GCPL grow organically. In South East Asia, this gives access to new market with exports to Malaysia, Myanmar and Philippines; in LatAm to Uruguay, Paraguay and Bolivia; and in Africa to various countries. The biggest market within a trade block is the hub for exports. The recent acquisition of 60% stake in Cosmetica Nacional provides an excellent opportunity to expand its LatAm business.

Focus on consolidation, Cross-pollination of products

GCPL is not actively scouting for any major acquisition in FY13, though it is open to acquiring smaller brands which will act as bolt on for current businesses. The company plans to derive synergistic benefits by taking its existing products to other geographies—hair colour to Indonesia, home insecticides to South Africa and Nigeria and home insecticides to Argentina, and plans to launch HIT Magic Paper in India.

Outlook and valuations: Positive; maintain ‘BUY’

We remain positive on GCPL’s 3X3 strategy and will benefit further by deriving synergies and cross selling. Currently, the stock is trading at 23.6x and 19.6x FY13E and FY14E EPS, respectively. We maintain ‘BUY/Sector Outperformer’.

Godrej Consumer - Exporting growth; visit note; Buy

Regards,