Recommendation: Buy
CMP = Rs 569
Price target: Rs 635
Godrej Consumer Products
Recommendation: Buy
CMP = Rs 760
Price target: Rs 912
- The visibility in the revenues and earnings has been the strongest in the recent years for the fast moving consumer goods (FMCG) industry in general and for Godrej Consumer Products in particular.
- The demand outlook is strong in view of the new breed of consumers ie semi-urban and rural consumers who have joined the consumption fray and have given the much needed spark to the industry.
- Given these vital fundamental changes, the valuations are fast changing. Comparable companies in the FMCG sector are already commanding higher valuations with the 2-year average industry price/earnings (P/E) multiple reaching +24-25x. GCPL, which trades at P/E multiple of 20.8x FY2008E consolidated earnings is still available at a discount of 20% to the average industry P/E.
- Considering the significant room for growth within the core businesses (hair care and toiletries businesses) and the entry in the international space through Keyline Brands, we have confidence in GCPL's long-term growth prospects.
- I am revising our price target for GCPL to Rs912, at which price the stock will discount its FY2008E consolidated earnings by 25x, in line with the industry.
