Broker's call: Godfrey Phillips (Buy)

| Updated on August 28, 2020

Centrum Broking

Godfrey Phillips (Buy)

Target: ₹1,320

CMP: ₹1001.45

Godfrey Phillips has been the worst affected cigarette player during the lock down period, due to closure of factories and distribution points as per state directives. Revenue slid by 49.4 per cent to ₹400 crore.

Tobacco segment revenue declined 52.3 per cent led by 47 per cent decline in cigarette volume. Moreover, postponement in passing on NCCD has led to a gross margins contraction of 4.87 percentage points (to 49.3 per cent).

Despite reduction in ASP (79 per cent) and other expenses (40 per cent) EBITDA declined by 72.1 per cent to ₹53.6 crore.

We expect a sharp recovery in sales in Q2-FY21 as all factories are operational now to cater market demand. The channel partners suggest pick up for value-for-money cigarettes, could unfold big opportunity for GPIL as its major portfolio is skewed towards RSFT/DSFT segment.

We maintain our estimates and reiterate DCF-based TP of ₹1.320, implying 17x FY22E EPS. Increase in NCCD yet to be passed on to consumers, affects margins in Q1

Published on August 28, 2020

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