Godrej Consumer Products (GCPL) hits 10% lower circuit after Q3 business update: Should you buy, hold or sell it?
GCPL further its filing added that historical patterns indicate a normalization in volume growth following price stabilization, which we anticipate occurring in the next few months.
The FMCG major Godrej Consumer Products Limited after market hours on Friday (December 6) released its Q3 busines update highlighting the current demand conditions as well as the company's overall operating performance in the December quarter.
Post the update, the company's stock in Monday's session bleeded with a sharp cut and hit a 10 per cent lower circuit at Rs 1,112.05 per share on the BSE.
The company in the release said that despite the demand remaining muted for the past few months, the company has over the past six quarters consistently delivered an average organic underlying volume growth (UVG) of around 7 per cent on the back of category development supported by innovations and media investments.
Godrej Consumer- Should you buy, sell or hold after Q3 business update?Inflationary pressure highlighted
Godrej Consumer- Should you buy, sell or hold after Q3 business update?: The surge in palm oil and derivatives prices to the extent of a y-o-y increase of 20-30 per cent has impacted the soaps category, which represents ~1/3rd of our Standalone business revenue.
To partly offset the cost increases we have taken price increases, reduced grammage of key packs and reduced various trade schemes. Such pricing actions typically have minimal impact on category consumption but do result in reduced inventory across wholesale and household pantry, added the filing.
Godrej Consumer- Should you buy, sell or hold after Q3 business update? GS view
Godrej Consumer- Should you buy, sell or hold after Q3 business update? Goldman Sachs has maintained 'buy' on the stock -reducing the target from the previous Rs 1,500 to Rs 1,375 noting that though 3Q profit warning turns out to be a setback, nevertheless headwinds not structural.
Godrej Consumer- Should you buy, sell or hold after Q3 business update?Macquarie view
Godrej Consumer- Should you buy, sell or hold after Q3 business update? Macquarie held a neutral view on the stock with a reduced target of Rs 1,260.
The brokerage said that it agrees with GCPL’s view on the insecticide growth impact being more seasonal. Concerned about continued palm inflation delaying the path to normalisation for soap volume/margin, it added.
Godrej Consumer- Should you buy, sell or hold after Q3 business update? JP Morgan view
Godrej Consumer- Should you buy, sell or hold after Q3 business update? The brokerage remains overweight on the counter and has revised the target lower to Rs 1,365 from Rs 1,410.
The brokerage highlighted that soaps and home insecticides (HI) contribute nearly one third each to the domestic revenue. Rest of the portfolio continues to do well, clocking double-digit volume growth.
Price hikes however would keep revenue growth at mid-single-digit levels, underscored the brokerage.
Update shows higher than anticipated revenue/earnings risk which are likely to further weigh on the share price performance in the short term, added the brokerage.
Q3 will likely witness flat volume growth for Soaps & HI.
Godrej Consumer- Should you buy, sell or hold after Q3 business update? Jefferies view
Godrej Consumer- Should you buy, sell or hold after Q3 business update? Jefferies is however bullish on the stock and has continued its buy with a target of Rs 1,550-implying potential gains of over 25 per cent on the premise that the decline in volume as well as EBITDA during the quarter as seen as transitory issues by the company's management.
Godrej Consumer- Should you buy, sell or hold after Q3 business update? UBS view
Godrej Consumer- Should you buy, sell or hold after Q3 business update? UBS also reiterates its positive stance and has suggested a buy with a target of Rs 1,450 per share. The brokerage added that even though the company's soap and HI segment will suffer during the quarter, rest of the portfolio to see double-digit volume growth.
EBITDA margin to fall below the normative range of 24-27 per cent due to unfavourable commodity prices. Indonesia to see mid single-digit volume growth; GAUM (Godrej Africa, USA, and Middle East) simplification to complete.