Godrej Consumer Products - IIFL - Result Update (Q3 FY14)

Godrej Consumer Products (Q3 FY14) - BUY - CMP Rs725, Target Rs832, Upside 14.8%

- GCPL recorded 16.8% yoy growth in revenues at Rs19.8bn during Q3 FY14 marginally below our expectations of Rs20.5bn. GCPL's domestic FMCG business registered modest 13.4% yoy revenue growth at ~Rs10.5bn. Adjusting for discontinuation of contract manufacturing sales, FMCG business registered 14% yoy growth.

- The FMCG business growth could have been even better but for mere 8% yoy growth in the key household insecticides (HI) segment (category reported negative growth). The management has stated that the poor performance in HI segment is due to high base and unfavourable weather conditions in South and East India (key region for HI sales). The management expects Q4 to be a better quarter for HI, given that it is main season for HI sales.

- Soaps segment outperformed the category which degrew in both value and volume terms by recording ~6% yoy revenue growth. The soaps category is witnessing a pressure with slowdown at the mass premium end of the category. GCPL has taken ~3-4% price hikes in soaps segment in January 2014 to mitigate the impact of higher in palm oil prices. Hair Colour segment recorded strong 37% yoy growth led by strong performance of Godrej Expert Rich Hair Crème and Godrej Expert advanced hair colour (powder portfolio). The liquid detergents segment too reported strong 36% yoy revenue growth during the quarter.

- GCPL is transforming itself in to an emerging-market play on high growth categories such as home insecticides, hair extensions and hair colours. With healthy growth momentum in both domestic and international businesses, successful acquisitions, GCPL management is confident of achieving 26% revenue CAGR over the next 10 years. The cross-pollination opportunity of products across geographies and leveraging of front-ended A&P spends for new product launches will further drive growth. The recent correction in stock price provides a good entry point. We expect GCPL to witness 17.3% CAGR in revenues and net profit respectively over FY13-15. At the current market price of Rs725, the stock is trading at 26.1x FY15E EPS of Rs27.8. We maintain Buy rating on the stock with a revised 9-month price target of Rs832 (earlier Rs943).

Source : Equity Bulls

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