Godfrey Phillips - Weaker Cigarette Volumes In Recent Month: Centrum Broking

Centrum Broking Report

We recently met the management of Godfrey Phillips India Ltd. Management opined, given lower rural demand cigarette consumption in recent months saw some pressure driving way for rising competitive intensity (trade discounting).

Godfrey Phillips focus on regular size filter tip segment coupled with solid growth in Marlboro franchise helped the company to maintain momentum. Further seizures from regulatory authorities, curtail the impact of illicit and counterfeits.

Management said, its core states contributing to ~70% of sales such as Jammu and Kashmir/Maharashtra/Gujarat/Rajasthan/Punjab saw reasonable growth. To improve its regular size filter tip offerings Godfrey Phillips recently launched few new cigarettes with double capsule. Management expects good recovery in cigarette volumes in H2 FY24.

Given lower prices for non flue-cured Virginia (Burley) tobacco in India, Godfrey Phillips expects strong exports of unmanufactured tobacco in H2 FY24 (+20%).

With clear focus on cutting losses, 24Seven convenience business (146 stores) witnessing steady footfalls. With rising sales for Marlboro, IPM (joint venture) saw strong profitability after wiping out losses by declaring dividend income to Godfrey Phillips, which may continue in our view.

We retain 'Buy', with discounted cash flow based target price Rs 2,383 (implying 13.6 times FY25E earning per share.

Risk: sharp increase in taxation and higher competition.

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