Godrej Consumer Products is developing into a good story in the FMCG space. Inorganic growth, like it's intended buy-out of Sara Lee’s 51% stake in the JV, is the trigger to watch out for this stock. This buy-out and its geographical expansion can potentially add 20% to the company's sales over FY2009.Godrej group intents to buy out Sara Lee’s 51% in Godrej Sara Lee Ltd. Going further, the group may even consider buying out the HI operations of Sara Lee in markets like Indonesia, Malaysia etc.
In the event of Sara Lee selling the global Household business to a third party, Godrej group has the opportunity to buy the entire 51% from Sara Lee at a predetermined price and in turn sell the Sara Lee brands (Ambipure, Brylcream and Kiwi) business to the new buyer at the market price.
The focus on low unit packs and increase in distribution reach, is expected to drive growth—the company has a reach of about 4,000 towns (of a total of 8,000 towns) and 15,000 villages (of a total of 6, 37,000 villages). GCPL is targeting to expand its presence to 8,000 towns and 50,000 villages in the next three years.
The EPS forecasts are Rs9.6 for FY2010E and Rs11 for FY2011E and at current price of Rs235, Godrej Consumer Products trades about 21 times based on FY2011E EPS. The recent acquisition of 49% stake in Godrej Sara Lee and higher distribution-led growth will be boost the company's growth prospects. Hence, long term investors can use any sharp correction to buy into this stock.