Recommendation From Personal Products Sectors

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

Godrej Consumer Products (GCPL) 

BSE Code: 532424
CMP: Rs 807.65
FV: Rs 1
BSE Volume: 34,799

PRIMED TO TAKE CARE OF YOUR PORTFOLIO HEALTH

HERE IS WHY New products to boost company growth Attractive valuations Recovery in key international markets 

Godrej Consumer Products Limited (GCPL) is engaged in the manufacture of personal and household care products. The company offers personal care products in a range of brands, including Cinthol, Grade 1 soap, Protekt, Soft & Gentle, Cuticura, Mitu and Pamela Grant. The company also caters to home care range of brands which include Good Knight, Hit, Aer, Ezee and Stella. Its Protekt range of products consist of approximately three hand washes, a hand sanitizer and a personal mosquito repellent spray, including instant foam hand wash and alcohol-free sanitizer. 

GCPL’s management’s focus is now on new states and strong on-ground execution, which is likely to help the company to maintain its growth trajectory in the foreseeable future. Further, developing the non-mosquito category and increasing out-of-home use amid the increasing rural and urban consumption would help the company to report good set of numbers in the coming quarters. Notably, the management is mulling over the launch of new products to boost its growth further. 

On a consolidated financial basis, the revenue was at Rs 2641.79 crore in Q2FY19, an increase of 5.80 per cent from Rs 2496.93 crore in the same quarter of the previous year. The PBIDT however fell by 8 per cent in the latest quarter ending September on a YoY basis as it stood at Rs 486.83 crore as against Rs 531.8 crore in Q2FY18. The profit after tax (PAT) has witnessed a substantial increase of around 60 per cent and came in at Rs 577.62 crore in the second quarter of FY19 from Rs 361.6 crore in the corresponding quarter of the previous fiscal. 

On the annual front, the net sales were recorded at Rs 9843.27 crore, 6 per cent higher in FY18 than Rs 8276.36 crore in FY17. The PBIDT in FY18 came in at Rs 2187.04 crore, a rise of 10 per cent from Rs 1981 in FY17. The PAT too has expanded by 25 per cent and reached Rs 1633.10 crore in FY18 as against Rs 1307 crore in FY17. 

Besides, due to the recovery in key international markets, GCPL’s consolidated numbers are likely to be impressive in the coming quarters. Apart from these, the savings in costs and price hikes are likely to act as a cushion for operating margins. 

On the valuation front, the company is currently trading at a P/E of 40.97x on its TTM earnings as against the industry P/E of 60.21x. The return on equity (ROE) for Godrej Consumer Products stands at 28.25 per cent, while its peer Emami’s ROE stands at 18.75 per cent. The return on capital employed (ROCE) for Godrej and Emami stood at 23.21 per cent and 18.75 per cent, respectively. After the recent correction, the stock is available at an attractive valuation of around 41x P/E on TTM EPS which is below its five-year median P/E of 43.9x. Also, premiumisation of products and cost rationalisation bodes well for the stock.

 

We thus recommend a BUY in the stock taking into consideration the confluence of the above mentioned factors.