Investor's Eye: Update - Godrej Consumer Products; CanFin Homes

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Investor's Eye [April 29, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE   Godrej Consumer Products Recommendation: Hold Price target: Rs825 Current market price: Rs783   Gross margin disappoints, OPM improves due to better cost management    Result highlights In Q4FY2014, Godrej Consumer Products' consolidated revenues grew by 12.3% to Rs1,931.5 crore (the revenue growth moderated from 17% in Q3FY2014). The slowdown in some of the key domestic categories (including soaps) and unfavourable currency movement in the international markets affected the revenue growth. Inflated raw material prices affected the GPM but a cut in the advertisement spending and stringent management of the other operating costs aided the OPM to improve by 148BPS to 17.7%.  The key disappointments for the quarter were a 4% decline in the soap sales volume, flat sales for the Indonesian business (affected by unfavourable currency movement) and a 300-BPS decline in the consolidated GPM YoY. On the other hand, the household insecticide segment regaining a doubled-digit growth rate (after a lull in Q3FY2014), a strong improvement in the margins of the African and Latin American businesses, a reduction in the working capital days to 16 days (from 31 days in FY2013) were the highlights of the quarter. We have marginally revised downwards our FY2015 and FY2016 earnings estimates by 4% and 1% respectively to factor in the lower revenue growth in the domestic soap segment and the international markets (Latin America and Indonesia) along with a higher tax rate of 22-23%. At the current market price the stock trades at 28.8x and 22.8x FY2015E and FY2016E earnings. In view of the growth uncertainties in the near term and the limited upside from the current levels we maintain our Hold recommendation on the stock with a revised price target of Rs825 (valuing the stock 24x FY2016E earnings).     CanFin Homes Recommendation: Buy Price target: Rs290 Current market price: Rs247   Growth outlook remains strong, price target revised to Rs290    Result highlights CanFin Homes continues to report a robust growth in profit-in Q4FY2014 its profit grew by 29.4% YoY to Rs20.1 crore led by a strong growth in the net interest income (up 25.3%). Almost the entire loan book of the company consists of retail loans and it grew by 46% YoY. The NIM however declined due to the company's focus on loan growth and a hike in the base rate by Canara Bank (which contributes significantly to the company's borrowings). The asset quality, as usual, remained strong with the gross non-performing assets declining further to 0.2% of loans (vs 0.3% in Q3FY2014). The net non-performing assets have remained nil for the past couple of quarters.  The management has maintained a strong growth outlook for FY2015 (a loan book of over Rs8,000 crore) and expects the growth to be driven by branch additions and focus on retail loans. The margin, which declined in the past couple of quarters, is likely to stabilise in FY2015. We have raised our estimates for FY2015 and FY2016 by around 10-12% each. This has led to a revision in our price target to Rs290. Given the company's strong return ratios (RoE of over 20%) and robust asset quality, we maintain our Buy rating on the stock. Click here to read report: Investor's Eye     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

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