Godrej Consumer Products: Recommendation Review

We had recommended Godrej Consumer Products (GCPL) in DSIJ Vol. 27, Issue No. 4 (dated 12th February, 2012), when it was trading at Rs 410.60. Our recommendation was based on the fact that the scrip was available at an attractive valuation, along with other factors like the company being a market leader in the hair and home care segments, while it stood second in the personal wash category. It had also taken the inorganic route for growth by acquiring a number of companies outside India.

After our recommendation, the scrip went northwards, helping investors create wealth. Through our ‘Book Profit’ SMS service, we had recommended booking profits in the scrip when it had touched Rs 550, which was at a 34 per cent premium to our recommended price. The stock is now trading at Rs 539, which is still well above our recommended price. In view of the volatile market conditions, we would advise investors to book profits at least now in case they have not done so already.

For the quarter ended March 2012, GCPL’s consolidated sales increased by 31 per cent to Rs 1323 crore, while the net profit jumped up 36 per cent to Rs 193 crore. Further, according to the management, the raw material (input cost) pressures will continue for a couple of quarters more. The announcement of a hike in excise and custom duty in this year’s budget will force FMCG players to pass on these hikes to some extent to consumers, which could affect the demand.

We had recommended GCPL when it was trading at a Price to Earnings (P/E) multiple of 19x, and at present, it is trading at around 25x. This, coupled with the volatile market conditions, is now making us advise investors to book profits in case they have not done so earlier.