Buy Godrej Consumer Products, target Rs 874: Edelweiss Securities
Buy Godrej Consumer Products at a price target of Rs 874.
Edelweiss Securities has a buy call on Godrej Consumer Products with a target price of Rs 874.
The current market price of Godrej Consumer Products is Rs 704.20.
Time period given by the brokerage is one year when Godrej Consumer Products price can reach the defined target.
Investment rationale by the brokerage:
Naturals agarbatti launch, tightening regulations to spur HI revival: Rising competition from unorganised players’ mosquito repellant incense sticks has taken the wind out of GCPL’s HI sales over the past couple of quarters. To counter this challenge, GCPL launched Goodknight Naturals Neem Agarbatti in December 2018 on pilot basis. Not only is it priced competitively at Rs 1.5 per stick (at par with illegal sticks), but it also runs for three 3 hours (6x illegal sticks). Moreover, the government has started cracking the whip on illegal incense stick makers, which will help organised players like GCPL regain lost ground.
International business- Concerns abating; on recovery road: GCPL’s Africa business is showing signs of gradual recovery with QoQ improvement in profitability. Relaunch of Darling brand in Kenya and Nigeria has evinced positive response. In Indonesia, post a tepid FY18, growth so far in FY19 has been consistently improving MoM with GCPL regaining lost market share. We also envisage huge cross-pollination opportunities—a few underway like the introduction of HI in Indonesia.
Outlook and valuation: We like GCPL’s focus on innovation and cost efficiency. Going ahead, we believe while rural growth and penetration opportunity will drive domestic business, recovery in Africa and Indonesia markets coupled with cross-pollination will drive international growth. We continue to assign 10 per cent discount to HUL’s target multiple to arrive at a target price of Rs 874. At the current market price, the stock is trading at 38.7x/34x FY20/21E EPS.
The current market price of Godrej Consumer Products is Rs 704.20.
Time period given by the brokerage is one year when Godrej Consumer Products price can reach the defined target.
Investment rationale by the brokerage:
Naturals agarbatti launch, tightening regulations to spur HI revival: Rising competition from unorganised players’ mosquito repellant incense sticks has taken the wind out of GCPL’s HI sales over the past couple of quarters. To counter this challenge, GCPL launched Goodknight Naturals Neem Agarbatti in December 2018 on pilot basis. Not only is it priced competitively at Rs 1.5 per stick (at par with illegal sticks), but it also runs for three 3 hours (6x illegal sticks). Moreover, the government has started cracking the whip on illegal incense stick makers, which will help organised players like GCPL regain lost ground.
International business- Concerns abating; on recovery road: GCPL’s Africa business is showing signs of gradual recovery with QoQ improvement in profitability. Relaunch of Darling brand in Kenya and Nigeria has evinced positive response. In Indonesia, post a tepid FY18, growth so far in FY19 has been consistently improving MoM with GCPL regaining lost market share. We also envisage huge cross-pollination opportunities—a few underway like the introduction of HI in Indonesia.
Outlook and valuation: We like GCPL’s focus on innovation and cost efficiency. Going ahead, we believe while rural growth and penetration opportunity will drive domestic business, recovery in Africa and Indonesia markets coupled with cross-pollination will drive international growth. We continue to assign 10 per cent discount to HUL’s target multiple to arrive at a target price of Rs 874. At the current market price, the stock is trading at 38.7x/34x FY20/21E EPS.
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