Motilal Oswal has maintained a 'Neutral' rating on Godrej Consumer Products (GCPL) with a target price of Rs 1100, in its research report dated December 22, 2014.
"GCPL's domestic business is witnessing month-on-month recovery in consumer demand. The management noted that recovery is broad-based, with November being the best month in YTD CY14. Industry trends are also improving sequentially; in October, Home & Personal Care saw positive growth for the first time in six months. Recovery is higher in rural demand than in urban demand, and the gap between rural and urban growth, which began narrowing in the last three quarters, is once again broadening, according to the management."
"GCPL's Indonesia business should register high teens revenue growth, with annual margin expanding. Africa, Nigeria and South Africa are impacted by weak macros and downtrading. We believe GCPL will look to acquire the rest of the Darling businesses in the next 18-24 months, with an expected outgo of INR11b-12b"
"We are revising our estimates for FY16 and FY17 upwards by 6-8% to factor in the correction in input costs. Uptick in consumer demand and benign raw material environment are key near-term positives for GCPL. While demand commentary is upbeat, we believe sustainability of the same is crucial. At 28.2x FY16E and 23.6x FY17E EPS, the stock trades at a discount to the sector. Exposure to various geographies, with attendant currency risks and relatively lower RoE (mid-20's) justify the discount, in our view. We maintain Neutral, with a revised target price of INR1,100 (27x FY17E adjusted EPS). We use EPS adjusted for premium payable on NCDs to arrive at our target price (the company adjusts this in reserves as permitted under the Companies Act, 1956). Our target P/E is at 10% discount to mid-tier FMCG companies, as the salience of International Business is higher for GCPL, which increases the country and currency risk profile", says Motilal Oswal research report.
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