Neutral on Godrej Consumer Products - Motilal Oswal

Godrej Consumer Products (GCPL IN; Mkt Cap USD2.8b, CMP Rs400, Neutral)

The management indicated medium term target of 15-20% organic growth and ~10% inorganic growth.

Megasari grew 27% during the quarter and reported 19% EBITDA margin. Management does not expect significant working capital improvement in the near term.

GCPL lost 40bp QoQ market share in the soaps business while ITC and HUL have gained. Increase in soap prices by 3-5% only partly offsets the input cost.

The management indicated it would take major initiatives in the hair color business over the next six months to revive its growth and market standing.

GCPL domestic business posted sales of Rs6.5b and EBITDA of Rs1.2b (margin of 18.6%). Standalone sales grew 8.3% to Rs3.4b.

GHPL posted sales growth in high teens with healthy margins (90bp expansion QoQ). We expect margin pressure in the standalone business due to rising PFA (Palm Fatty Acid) prices and the company's delay in increasing its soap prices in the face of stiffening competition. The stock trades at 23.3x FY12E and 19.9x FY13E earnings. Maintain Neutral.

Source : Equity Bulls

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