Re: {LONGTERMINVESTORS} Godrej Consumer: thread
RAJESH DESAI
Dominant positioning in core MFD business: GSK enjoys dominant market share of ~70% (55% for Horlicks) in its core MFD business (category size of ~Rs35bn) which is under-penetrated (22% penetration, 11% in rural), driven by strong brand equity of Horlicks as well as growing awareness for Health and Nutrition products, which in-turn, is catalyzed by rising disposable income. Prabhudas Lilladher expects GSK to witness 9-10% volume CAGR in MFD driven by distribution expansion, increased penetration in rural markets and GSK’s successful sub-segmentation strategy which is driving the premiumisation in core business.
Non-MFD business remains a mixed bag: GSK’s attempts to diversify the revenue basket have not yielded spectacular gains so far. While Biscuits has remained confined to niche categories(<2% market share), GSK had to withdraw its Nutribar offering after it failed to gain traction. Similarly its foray into Noodles segment hasn’t built scale. Recently, leveraging the equity of Horlicks, it entered into Rs2bn Oats category which is growing at 25% per annum. While there are many examples of successful umbrella branding (Colgate, Amul) Prabhudas Lilladher reckons stretching the equity of Horlicks runs the risk of diluting its core proposition. Successful execution and scale up are key parameters to monitor. Non-MFD bucket remains insignificant as yet (6% of sales) to impact the overall business either ways.
19% EPS CAGR for CY11-14e: Prabhudas Lilladher expects GSK to register steady 17.5% sales growth driven by MFD business. They are building in margina l40bps expansion in operating margins as Prabhudas Lilladher expects GSK to pass input cost inflation to consumers. GSK has been re-rated in the last three years owing to its healthy volume growth in MFD segment and preference for safe havens in risk-averse market. Prabhudas Lilladher values GSK at a rolling forward 12-month P/E of 25x to arrive at their May 2013 target price of Rs3200, an upside of 18%. Spike in input costs, rising competition in core MFD category and failure of new launches are the key risks.
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CA. Rajesh Desai
RAJESH DESAI
Godrej Consumer Products Limited. (GCPL)
| 7-Aug-12 | 12.00 PM IST | 022 6629 0087 | Primary Number | Financial results | ||
| 022 3065 0187 | Secondary Number | |||||
| 6000 1221 / 3940 3977 | All India Access |
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CA. Rajesh Desai