HDFC Securities

Godfrey Phillips (Hold)

CMP: ₹2,705.75

Target: ₹3,166

Though GPIL’s Q1FY15 results were robust, its Q4FY14 results were highly disappointing and FY14 results were below our estimates. Further, we expect GPIL’s overall sales growth to slow down in FY15 on the back of expected decline in cigarettes and tobacco volumes. While we feel the company would manage to improve its overall margins in FY15 (which would be aided by steep price hikes in cigarettes), the absolute profit growth would be lower due to slowdown in sales growth. We are downgrading our net sales, operating profit and PAT growth by 4.9 per cent, 5.1 per cent and 5.2 per cent respectively. Accordingly, revised EPS is estimated to be ₹263.8 (₹278.3 originally estimated). Due to recent Supreme Court’s notice to Centre and Government’s positive response to it, GPIL’s stock could underperform and could be derated in near term.

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