Share Market Update on Godrej Consumer Products Ltd

    GCPL has entered an agreement for the right to acquire 51% stake in Darling Group Holdings: Godrej Consumer Products (GCPL) enters into an agreement for the right to acquire 51% stake in Darling Group Holdings, one of the largest players in hair care category in Africa with brands like Darling and Amigos; both these brands are market leaders in the countries in which they are present. Darling Group Holdings  manufactures and distributes full range of hair extension products in Africa and operates in 14 countries in sub-Saharan African region.

    Nature of deal: Financial details of Darling Group and the deal size have not been disclosed by the company. GCPL’s management has said that the deal is going to be EPS accretive from the first year itself and going forward the company plans to acquire 100% stake in the Darling Group. While Darling Group’s current management team will continue to manage the business, GCPL will institute a cross functional team with members from current Darling Group’s management team and its team to leverage synergies.

    Our take on the deal: We have not factored the deal in our numbers due to lack of details particularly, deal size and financial details of the company. We believe the acquisition is in line with GCPL’s global 3x3 strategy – presence in 3 continents – Asia, Africa and Latin America through 3 core categories - Home care, Personal wash and Hair care.

    Outlook and valuation: We have modeled in a 12.3% CAGR in domestic revenue and a 21% CAGR in international revenue. We expect the company’s operating margin to sustain at ~20% going ahead, supported by higher revenue contribution from the home care division and cross-pollination resulting in synergistic benefits in terms of cost rationalisation. Hence, we expect GCPL to post a 13% CAGR in earnings during the period (post ~ 5% dilution from the recent QIP). At the CMP of `418, the stock  trading at 20.6x FY2013E earnings of `20.3. We maintain an Accumulate rating on the stock with a target price of `447. 

Stock Market Update on JK Lakshmi Cement for 4QFY2011

Stock Market Update on JK Lakshmi Cement for 4QFY2011 with a Buy recommendation and a Target Price of `57 (12 months)
 

    JK Lakshmi Cements (JKLC) reported a 54.4% yoy decline in its bottom line during 4QFY2011 due to a 10.7% drop in volumes. However, realisations improved by 4.6% yoy (14.0% qoq) due to price hikes taken by cement manufacturers during the quarter by adopting production discipline. EBITDA per tonne stood at `619, down 15.3% yoy. On a sequential basis, the company reported strong bottom-line growth on a low base, due to higher dispatches (up 15.1%) and better realisations. Dispatches rose sequentially due to pick-up in demand from the northern region. We maintain our Buy recommendation on the stock.

    Top line down 5.5% yoy: JKLC registered a 5.5% yoy top-line decline to `417cr, primarily due to a 10.4% decrease in dispatches to 1.26mn tonnes. Cement realisations improved by 4.6% yoy to `3,298/tonne. The company’s margin declined by 456bp yoy to 18.6% due to higher power and fuel and freight costs. Per tonne power and fuel and freight costs increased by 44.1% yoy and 24.2% yoy, respectively, during the quarter.

    Outlook and valuation: We expect JKLC to post a decent 14% CAGR in its top line over FY2011–13E, aided by a 10% CAGR in dispatches over the period. However, we expect margin pressure due to moderate growth in realisations and escalations in cost. At the CMP, the stock is trading cheaply at EV/EBITDA of 2.6x and EV/tonne of US$29 based on FY2013E. We have valued the stock at EV/EBITDA of 3x on FY2013E to arrive at a target price of `57. Although weak fundamentals would remain an overhang in the near term, we maintain our Buy recommendation on the stock primarily due to its cheap valuations.

Stock Market Update on Greenply Industries for 4QFY2011

Stock Market Update on Greenply Industries for 4QFY2011 with a Buy recommendation and a Target Price of `270 (12 months).

    Greenply Industries(GIL) registered strong top-line growth in 4QFY2011. The company’s net sales grew by 35.0% yoy and 10.3% qoq to `350cr. GIL reported 143bp yoy contraction in OPM to 8.1% (9.5%) mainly due to forex losses of `9cr. Net profit declined by 55.4% yoy to `5.9cr (`13.3cr). Nonetheless, we believe the company is well placed to benefit from its laminates capacity expansion, commencement of the MDF plant and expansion in the plywood segment. Hence, we maintain our Buy view on the stock.

Top line posts strong growth, margin disappoints: For 4QFY2011, GIL’s top line reported 35.0% yoy growth to `350cr (`259cr) mainly on the back of laminate capacity expansion, higher capacity utilisation in the MDF segment and increased realisations during the quarter. EBITDA declined by 14.7% yoy and 3.1% qoq to `28cr on the back of forex loses of `9cr in the quarter. EBITDA margin also came down by 143bp yoy and 112bp qoq to 8.1%. For FY2011, EBITDA margin fell by 225bp to 9.0%, largely due to zero contribution from the MDF segment in 1HFY2011. PAT for 4QFY2011 came down by 55.4% to `5.9cr and PAT margin fell by 343bp to 1.7%.

    Outlook and valuation: We believe Greenply is well placed to benefit from its laminates capacity expansion (which increased by nearly two-folds in FY2010) and is expected to achieve 100%+ utilisation in FY2012. The company will also benefit from the commencement of the new MDF plant at Uttarakhand, which will achieve around 50% capacity utilisation in FY2012. In addition, expansion of the company’s plywood capacity by 3.75mn sq. ft. is expected to contribute around `45cr to the company’s FY2012 top line. At `190, the stock trades at attractive valuation of 4.7x FY2013E earnings. We maintain Buy with a target price of `270.