Brokerages Downgrade Godrej Consumer On First Quarter Letdown

Most brokerages have downgraded their stock rating for Godrej Consumer Products Ltd., after the FMCG major reported first quarter earnings that widely missed analyst consensus estimates.

The net profit declined 8.9 percent year-on-year to Rs 225 crore. The FMCG-major's international business was dragged down by its Indonesia market.

Here's what brokerages had to say about Godrej Consumer's earnings:

CLSA

• Stock Rating: Downgraded to ‘Sell' from ‘Underperform'
• Target Price: Cut to Rs 940 from Rs 958
• Godrej Consumer faced major headwinds across key markets, leading to a 9 percent earnings decline
• India business expectedly saw pressure from destocking ahead of GST
• Indonesia business was very weak due to an unexpected rise in competitive pressures
• Domestic revenue growth was at 6 percent with underlying volumes flat.
• Realisation growth surprised
• Underlying growth was a bit disappointing given GCPL's urban bias
• Cut EPS by 3-6 percent and remain negative

Credit Suisse

• Stock Rating: Downgraded to ‘Neutral' from ‘Outperform'
• Target Price: Unchanged at Rs 1,000
• Q1 earnings declined 8 percent YoY, significantly below estimates
• Cut earnings by about 8 percent
• Continue to like the innovation-led strategy
• Likely weakness in FY18 coupled with steep valuations leave little room for upside
• We would look for a better entry point
• Sales growth, one of the highest amongst peers, given the GST destocking in Q1
• Core of the business in Indonesia is under pressure which will impact growth adversely in FY18
• Valuations leave little room for upside, and will look for a better entry point

Motilal Oswal

• Stock Rating: Maintains ‘Neutral'
• Target Price: Raised to Rs 995 from Rs 930
• Price hike-led sales growth in India, Indonesia drags international performance
• Earnings growth has been more consistent than FMCG peers
• Believes that the stock does not warrant a higher multiple
• No material change to our EPS forecasts
• Q2 will still be a challenge, while Q3 might see recovery
• At 42 times March 2019E EPS, the stock is by no means undervalued

Deutsche Bank

• Stock Rating: Downgraded to ‘Hold' from ‘Buy'
• Price Target: Unchanged at Rs 1,000
• Q1 FY18 missed estimate
• Volume Growth was flat, impacted by GST
• Cut earnings estimates by 5 percent
• Higher competitive intensity in Insecticides in Indonesia and lack of revenue momentum are among the short-term challenges
• Domestic business remains in line with its domestic consumer sector peers
• Return of higher than expected price growth and stronger market gains in India are the upside risks
• Rural slowdown impacting demand and currency volatility are the downside risks

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