Stock Pick From Personal Care Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

Here Is Why

Boost in consumer demand

Acquisition of DGH Phase Mauritius

Indian FMCG sector is passing through a defining moment in history with the ever changing buyer demographics, innovative strategies and products will be churned out to gain their attention as they become an integral revenue-driver. The consumer durables market is expected to reach USD 20.6 billion by 2020. Urban markets account for the major share with 65 per cent of total revenues in the consumer durables sector in India. The government’s budget for FY17 is also focused on pro rural. The positive sentiments across the sector would benefit companies like Godrej Consumer Products (GCPL).

GCPL is engaged in the manufacturing of household and personal care products. The company's geographic segments include within India and outside India. Its range of personal care products comprises hand washes, a hand sanitiser and a personal mosquito repellent spray. GCPL also manufactures hair colour, household insecticides, liquid detergents and soaps. The company's brands include Good Knight, Cinthol, Godrej Expert, Godrej No. 1, HIT, Mitu, Aer, Ezee, Inecto, Stella, Roby, Villeneuve and Tura.

GCPL has increased its equity stake from 51 per cent to 90 per cent in DGH Phase Mauritius through its subsidiary. DGH Phase Two, an investment holding company, owns Style Industries, Kenya. Style Industries is located in Nairobi, Kenya and is into hair accessories among other businesses. Financially, DGH posted revenue of USD 2.7 million (Rs 180 million) in FY15. GCPL’s acquisition diversifying its operational base apart from India and Indonesia. The company’s strategy to increase stake in subsidiaries which will generate more income in coming term.

On financial front, GCPL’s revenue increased by 5.39 per cent to Rs 2356 crore in Q3FY16 as compared to same period in previous fiscal year. The company’s EBITDA too rose by 14.96 per cent to Rs 458 crore in Q3FY16 on yearly basis. Its EBITDA margin expanded by 162 basis points to 19.44 per cent in Q3FY16 as compared to same period in previous financial year. GCPL’s net profit boosted by 22.53 per cent to Rs 323 crore in Q3FY16 on yearly basis. The company’s Net profit margin expanded by 192 basis points to 13.71 per cent in Q3FY16 as compared to same period in previous fiscal year.

Considering nine month financials, GCPL’s top line increased by 88.92 per cent to Rs 6699 crore in 9MFY16 as compared to same period in previous fiscal year. The company’s EBITDA too rose by almost double to Rs 1181 crore in 9MFY16 on yearly basis. Its bottom line also rose by 809 crore in 9MFY16 as compared to same period in previous financial year.

On segmental revenue front, GCPL earned around 51.24 per cent from Soap segment and remaining 48.76 per cent from Personal Care segment as of FY15. On geographical segment wise, the company earned about 52.51 per cent from India and remaining 47.49 per cent from outside India as of FY15. 

On the valuation front, GCPL’s stock is trading at trailing twelve months (TTM) PE multiple of 41.88x times which is slightly higher than industry PE of 37.83x times. The company’s dividend yield of 0.48 per cent as of FY15. Hence, we recommend our readers to BUY the stock.