(1) Godrej Consumer Products
Recommendation: Hold
Price Target: Rs309
Current Market Price: Rs298
Result highlights
• Godrej Consumer Products Ltd (GCPL)? S Q4FY2010 results are not comparable on a year-on-year (yoy) basis on account of consolidation of Godrej Sara Lee? S 49% stake in Q2FY2010. The bottom line for Q4FY2010 growth exceeds our estimates due to a higher-than-expected Operating profit margin (OPM), however the stand-alone Revenue growth, at just 2.1%, was disappointing.
• The Consolidated net sales for the quarter went up by 48.6% year on year (yoy) to Rs509.2 crore, which is less than our estimates of Rs533.7 crore. The stand-alone (domestic) business registered a disappointing Performance with the growing sales by just 2.1% yoy to Rs282.4 crore. This We Believe is mainly on account of ~ 5% yoy sales declined in the segment of the Soap (which contributes ~ 60% to the stand-alone sales.) On the other hand, the International Operations logged in to the Strong Performance with revenues growing by ~ 19.0% yoy, mainly on account of a robust Performance of Rapidol and Kinky, which saw their revenues Grow by 60.0% yoy ~ and ~ 27% yoy During the quarter respectively. Godrej Sara Lee contributed Rs147.0 crore to the Consolidated revenues During the quarter.
• In spite of high spends Towards advertisement cost and other expenditures, the OPM improved by 176 basis Points to 21.1% (ahead of our estimates of 19.5%) mainly on account a lower yoy Raw Material cost as percentage to sales. The Raw Material cost as percentage to sales stood at 44.5% in Q4FY2010 as Against 50.9% in Q4FY2009. The Operating profit grew by 62.1% yoy to Rs107.2 crore, ahead of our estimates of Rs103.8 crore.
• Thus, Despite a lower-than-expected growth in the top line, the bottom line grew by 54.6% to Rs91.8 crore yoy (ahead of our estimates of Rs85.6 crore), which in is line with a strong board in the OPM.
• We have revised our bottom line and estimates for FY2011 FY2012 downwards by 6.4% and 5.0% respectively, primarily to the factor in lower sales growth trajectory in the Soap segment and the higher Raw Material cost.
• We expect the International Business Along with the Recent acquisitions to register a robust growth in the coming years. In the Domestic Operations though the Performance of the Soap business (that showed signs of stress in Q4FY2010) Needs to be watched out.
• At the Current Market Price, the Stock trades at 23.7x its FY2011E earnings per share (EPS) of Rs12.6 and 20.3x its FY2012E of Rs14.7. In line with our onwards revision in the earnings estimates, our revised price Target er at Rs309 (21x its FY012E EPS). In view of the limited upside from the current level, we are downgrading our Recommendation to Buy from Hold.
• However, We Believe, the investors would do well to hold on to the Stock as the likelihood of Further acquisition announcements (especially in Latin America) would keep the flavor in Stock And could bring in Further upside potential. Also, though currently not quantifiable due to lack of information, the EPS accretive Nature (as indicated by the Management) of the Megassari Deal could bring in a Further to the upside EPS estimates and hence the Stock Price.
(2) Maruti Suzuki India
Recommendation: Hold
Target Price: Rs1, 473
Current Market Price: Rs1, 335
Price Target revised to Rs1, 473
Result highlights
• Maruti Suzuki India (Maruti)? S Q4FY2010 results were in line with our expectation at the Operating Level, however a lower-than-expected other income pulled down the net profit below our Expectations.
• The total income for the quarter grew by 30.7% year on year (yoy) to Rs8, 280.8 crore on the back of a robust 21.5% year-on-year (yoy) growth in the volumes and a 7.5% yoy growth in the average net realisation.
• The Operating profit margin (OPM) at 11.7% was in line with our expectation of 11.2% and was higher by 614 basis Points on a yoy basis. The margin was on board account of a 277-basis-point declined yoy in the Raw Material cost as a percentage to the total income at 77.4% (the same was however 162 basis Points higher on a quarter-on-quarter [qoq] basis .) Furthermore, a 310-basis-point declined yoy in the other EXPENSES as a percentage to the total income at 9% for the quarter led the Operating profit to Grow by a hefty 175.8% yoy to Rs967.3 crore (Against our expectation of Rs914 .2 crore).
• On account of much lower yields on investments in the quarter as compared to the corresponding quarter of the last year, the other income came in significantly below Expectations at Rs222.7 crore (a growth of 9.2% yoy), which subdued the Performance Operating at the level. Consequently, the visit net profit surged by 170% to Stellar yoy to Rs656.5 crore (as Against our expectation of Rs731 crore).
• For FY2010, the company has also announced a final dividend of Rs6 per share (face value of Rs5 per share).
• Maruti is Likely to face headwinds both on the Sales Volume growth and the profit margin Front going ahead. While the high base of FY2010, aggravating competition and the upturn in interest lost cycle process on Challenge to growth in volumes, the prices are rising biz.commodity Likely to pressurise the profitability.
• Though we maintain our estimates for FY2011, we are reducing our estimates for FY2012 by 4.8%. Our FY2012 estimates stand revised downwards factoring in a higher capital expenditure (capex) of Rs3, 000 crore for FY2012, which will reduce the free Cash on the books, thereby leading to a higher depreciation and lower other income.
• As a consequence of the onwards revision in our earnings estimates for FY2012 and to factor in the above risks to the growth going ahead and the Moderate compounded annual earnings growth fail (CAGR) of% 10.3 percent for FY2010-12E, we have reduced our Target price multiple to 14x (from 16x earlier). We have also rolled over our Price Target to FY2012 earnings.
• At the Current Market Price, the Stock is trading at 14.2x its FY2011E earnings and 12.7x its FY2012 earnings. We maintain our Hold Recommendation on the Stock with a revised Target Price of Rs1, 473. We expect the Stock to underperform in the near term and prefer Rather Mahindra & Mahindra (M & M) in the space Automobile
Recommendation: Hold
Price Target: Rs309
Current Market Price: Rs298
Result highlights
• Godrej Consumer Products Ltd (GCPL)? S Q4FY2010 results are not comparable on a year-on-year (yoy) basis on account of consolidation of Godrej Sara Lee? S 49% stake in Q2FY2010. The bottom line for Q4FY2010 growth exceeds our estimates due to a higher-than-expected Operating profit margin (OPM), however the stand-alone Revenue growth, at just 2.1%, was disappointing.
• The Consolidated net sales for the quarter went up by 48.6% year on year (yoy) to Rs509.2 crore, which is less than our estimates of Rs533.7 crore. The stand-alone (domestic) business registered a disappointing Performance with the growing sales by just 2.1% yoy to Rs282.4 crore. This We Believe is mainly on account of ~ 5% yoy sales declined in the segment of the Soap (which contributes ~ 60% to the stand-alone sales.) On the other hand, the International Operations logged in to the Strong Performance with revenues growing by ~ 19.0% yoy, mainly on account of a robust Performance of Rapidol and Kinky, which saw their revenues Grow by 60.0% yoy ~ and ~ 27% yoy During the quarter respectively. Godrej Sara Lee contributed Rs147.0 crore to the Consolidated revenues During the quarter.
• In spite of high spends Towards advertisement cost and other expenditures, the OPM improved by 176 basis Points to 21.1% (ahead of our estimates of 19.5%) mainly on account a lower yoy Raw Material cost as percentage to sales. The Raw Material cost as percentage to sales stood at 44.5% in Q4FY2010 as Against 50.9% in Q4FY2009. The Operating profit grew by 62.1% yoy to Rs107.2 crore, ahead of our estimates of Rs103.8 crore.
• Thus, Despite a lower-than-expected growth in the top line, the bottom line grew by 54.6% to Rs91.8 crore yoy (ahead of our estimates of Rs85.6 crore), which in is line with a strong board in the OPM.
• We have revised our bottom line and estimates for FY2011 FY2012 downwards by 6.4% and 5.0% respectively, primarily to the factor in lower sales growth trajectory in the Soap segment and the higher Raw Material cost.
• We expect the International Business Along with the Recent acquisitions to register a robust growth in the coming years. In the Domestic Operations though the Performance of the Soap business (that showed signs of stress in Q4FY2010) Needs to be watched out.
• At the Current Market Price, the Stock trades at 23.7x its FY2011E earnings per share (EPS) of Rs12.6 and 20.3x its FY2012E of Rs14.7. In line with our onwards revision in the earnings estimates, our revised price Target er at Rs309 (21x its FY012E EPS). In view of the limited upside from the current level, we are downgrading our Recommendation to Buy from Hold.
• However, We Believe, the investors would do well to hold on to the Stock as the likelihood of Further acquisition announcements (especially in Latin America) would keep the flavor in Stock And could bring in Further upside potential. Also, though currently not quantifiable due to lack of information, the EPS accretive Nature (as indicated by the Management) of the Megassari Deal could bring in a Further to the upside EPS estimates and hence the Stock Price.
(2) Maruti Suzuki India
Recommendation: Hold
Target Price: Rs1, 473
Current Market Price: Rs1, 335
Price Target revised to Rs1, 473
Result highlights
• Maruti Suzuki India (Maruti)? S Q4FY2010 results were in line with our expectation at the Operating Level, however a lower-than-expected other income pulled down the net profit below our Expectations.
• The total income for the quarter grew by 30.7% year on year (yoy) to Rs8, 280.8 crore on the back of a robust 21.5% year-on-year (yoy) growth in the volumes and a 7.5% yoy growth in the average net realisation.
• The Operating profit margin (OPM) at 11.7% was in line with our expectation of 11.2% and was higher by 614 basis Points on a yoy basis. The margin was on board account of a 277-basis-point declined yoy in the Raw Material cost as a percentage to the total income at 77.4% (the same was however 162 basis Points higher on a quarter-on-quarter [qoq] basis .) Furthermore, a 310-basis-point declined yoy in the other EXPENSES as a percentage to the total income at 9% for the quarter led the Operating profit to Grow by a hefty 175.8% yoy to Rs967.3 crore (Against our expectation of Rs914 .2 crore).
• On account of much lower yields on investments in the quarter as compared to the corresponding quarter of the last year, the other income came in significantly below Expectations at Rs222.7 crore (a growth of 9.2% yoy), which subdued the Performance Operating at the level. Consequently, the visit net profit surged by 170% to Stellar yoy to Rs656.5 crore (as Against our expectation of Rs731 crore).
• For FY2010, the company has also announced a final dividend of Rs6 per share (face value of Rs5 per share).
• Maruti is Likely to face headwinds both on the Sales Volume growth and the profit margin Front going ahead. While the high base of FY2010, aggravating competition and the upturn in interest lost cycle process on Challenge to growth in volumes, the prices are rising biz.commodity Likely to pressurise the profitability.
• Though we maintain our estimates for FY2011, we are reducing our estimates for FY2012 by 4.8%. Our FY2012 estimates stand revised downwards factoring in a higher capital expenditure (capex) of Rs3, 000 crore for FY2012, which will reduce the free Cash on the books, thereby leading to a higher depreciation and lower other income.
• As a consequence of the onwards revision in our earnings estimates for FY2012 and to factor in the above risks to the growth going ahead and the Moderate compounded annual earnings growth fail (CAGR) of% 10.3 percent for FY2010-12E, we have reduced our Target price multiple to 14x (from 16x earlier). We have also rolled over our Price Target to FY2012 earnings.
• At the Current Market Price, the Stock is trading at 14.2x its FY2011E earnings and 12.7x its FY2012 earnings. We maintain our Hold Recommendation on the Stock with a revised Target Price of Rs1, 473. We expect the Stock to underperform in the near term and prefer Rather Mahindra & Mahindra (M & M) in the space Automobile
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