Buy GCPL on strong Q3 earnings: Nomura

Published: February 7, 2015 12:16 AM

Retain ‘buy’ on Godrej Consumer Products (GCPL) with a target price of R1,133 based on a P/E multiple of 29x applied...

Retain ‘buy’ on Godrej Consumer Products (GCPL) with a target price of R1,133 based on a P/E multiple of 29x applied to one-year forward EPS of R39.1.

GCPL reported Q3FY15 results which were largely in-line with expectations, with ebitda margins surprising positively. The benefit of lower commodity costs is still not fully reflecting in the numbers in Q3FY15 (gross margins +40 bps y-o-y), and should start to see an improvement over the next 2-3 quarters.

Topline growth at +12.5% is a significant improvement over the run rate in H1FY15 (average +7.1% growth) and momentum should continue to build over the next 2-3 quarters. We like the medium-term story at GCPL and with both topline and margin tailwinds in the near term, the stock should continue to perform relative to the sector.

The company’s net sales increased 12.5% y-o-y to Rs 22.26 billion versus our expectation of R2,216 crore and consensus of R2,205 crore. This is an improvement over the run rate seen in H1FY15, and gives us confidence about the topline expectations over the next year.

Household insecticide revenue was up 16% y-o-y, with the company’s market share at the end of December in the category being at the highest ever level. Soaps revenue was up +11% y-o-y, ahead of category growth of low single digits. Hair colour revenue was up 10%,a solid performance considering the base quarter performance was strong at 37% growth.

By Nomura

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