Stock Market Result Update on Godrej Consumer Products for 2QFY2012

Stock Market Result Update on Godrej Consumer Products for 2QFY2012 with an Accumulate recommendation and a Target Price of `452 (12 months).

Godrej Consumer (GCPL) posted a modest set of numbers for the quarter, largely in-line with our estimates. Consolidated top-line growth was strong at 24.5% yoy. The domestic business grew by healthy 24% yoy, led by all three categories, household insecticides, soaps and hair colors. On the international business front, Indonesia and Latam grew strongly. We maintain Accumulate on the stock.

Key highlights of the quarter: Consolidated top line grew by 24.5% yoy with domestic sales and international business posting healthy growth of 24% and 19% yoy, respectively. Soaps, household insecticides and hair colors performed well for the company. On the operating front, the company reported a marginal decline in its margins (down 23bp yoy) and came in at 17.6%. Recurring PAT grew by 13.3% yoy; whereas on a reported earnings basis, the company posted a decline of 2.5% yoy in earnings and stood at `128cr (`131cr). The quarter saw robust growth in its hair colors and household insecticides categories, growing by more than double the category growth rates (32% yoy and 29% yoy), respectively.

Outlook and valuation: During the quarter, GCPL completed the acquisition of a 51% stake in Darling Group in South Africa and Nigeria. We have revised our estimates, as we factor in Darling Group’s acquisition in our numbers. GCPL’s recent acquisitions have been in-line with its 3X3 strategy and enable the company to spread its footprint and grow inorganically. At the CMP of `404, the stock is trading at 18.8x FY2013E earnings of `21.5. We maintain an Accumulate rating on the stock with a revised target price of `452 (`457), based on 21x FY2013E EPS.