Go­drej Con­sumer Slumps 7% on Down­grades Af­ter Weak Q1

The Economic Times - - Money -

Mum­bai: Weak first quar­ter earn­ings by Go­drej Con­sumer Prod­ucts trig­gered a spate of an­a­lyst rat­ing down­grades and sent the share price crash­ing as much as 7% on Tues­day. An­a­lysts ex­pect fur­ther weak­ness in the stock as rich val­u­a­tions could prompt in­vestors to look at ri­vals such as Hin­dus­tan Unilever (HUL) and Bri­tan­nia.

Go­drejCon­sumer­sharesclosed 6.81%loweronTues­dayat ₹ 964.25 ex­tend­ing its 2% fall of Mon­day af­ter dis­ap­point­ing first quar­ter re­sults. An­a­lysts said de­stock­ing intherun-up­tothe­good­sand­ser­vices tax and higher com­pe­ti­tion cou­pled with lower trad­ing days in In­done­sia were the key rea­sons for un­der­per­for­mance in the quar­ter. Bro­ker­age firms CLSA, Credit Suisse and Deutsche Bank down­graded rat­ings on the stock.

“Peo­plew­ere­buildin­gin­strong growth prospects for both In­done­sianandAfrican­mar­kets but In­done­sia did not de­liver. Fur­ther de-rat­ing is likely in FMCG com­pa­nies with a high in­ter­na­tion­al­con­cen­tra­tiondue to cur­rency fluc­tu­a­tion and un­sta­ble macro-eco­nomic con­di­tions,” said Hi­man­shu Nay­yar, con­sumer an­a­lyst at Sys­tem­atix Shares & Stocks. Go­drej Con­sumer’s in­ter­na­tional busi­ness ac­counts for over 40% of its over­all busi­ness. “Even though shares of Bri­tan­nia and Hin­dus­tan Unilever aren’t cheap, we pre­fer them over Go­drej. Their In­dian fo­cus means f ar fewer risks to growth.”

The con­tin­ued com­pe­ti­tion in the In­done­sian house­hold in­sec­ti­cide(HI)seg­men­twill­weighon mar­gins in the sec­ond and third quar­ters, said bro­ker­age firms. “The is­sues have been in the HI busi­ness like ad­verse sea­son­ali- ty and spo­radic surges in com­pet­i­tive in­ten­sity. How­ever, what makes us con­cerned now is that the de­cline in sales is hap­pen­ing on a low base as well,” said Credit Suisse in a note.

Some an­a­lysts like Ab­neesh Roy, se­nior vice pres­i­dent at Edel­weiss Se­cu­ri­ties, aren’t too per­turbed by the com­pany’s per­for­mance.“GCPL’s In­done­sia busi­ness has strug­gled in the last many quar­ters. So this isn’t a new de­vel­op­ment. In one sense we ex­pect the In­dia busi­ness growth to make up for thestressintheIn­done­sian­mar­ket go­ing ahead.”

The com­pany’s year-on-year profit af­ter tax (PAT) has fallen for the first time in six years while EBITDA has fallen for the first time in nine years. It re­ported an 8.7% de­cline in net profit at ₹ 225 crore against an ex­pected ₹ 264 crore. Rev­enue growth of 2.9% at ₹ 2,177 crore was, how­ever, in line with es­ti­mates.

The price-to-earn­ings ra­tio of Go­drej Con­sumer is 25% higher than the three-year av­er­age and 30% higher than the five-year av­er­age, a re­port by Ko­tak Se­cu­ri­ties said. It cur­rently trades at 48 times its 2018 es­ti­mated earn­ings.

The com­pany’s In­dia mar­gins would have been higher had it spent lesser on ad­ver­tise­ments, said an­a­lysts. Its pri­mary sales growth in In­dia at 6% year-onyear is ex­pected to be one of the high­est amongst peers de­spite GST de­stock­ing.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.