Shares of Godrej Consumer Products rose 1.3 percent on Friday after CLSA retained its 'outperform' rating for the stock with a target price of Rs 1,130. The brokerage, however, said it sees a muted earnings delivery by the FMCG company for the December quarter due to a weak EBITDA margin.

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At 10:10 am, Godrej Consumer shares were up 0.4 percent at Rs 952.4. The Nifty FMCG index was up half a percent.

CLSA's target price for Godrej Consumer is based on the company's 50 times September 2023 earnings per share (EPS), CLSA said.

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In a business update, released after market hours on Thursday, Godrej Consumer Products said short-term challenges have played out in Q3, including unprecedented cost inflation and the performance of the Indonesia business. This has resulted in low volume growth and high price growth, and a high dilution of gross and EBITDA margins, it said.

The company, however, expects to deliver close to high single-digit sales growth In India, largely driven by pricing. Godrej Consumer said it witnessed broad-based sales growth in both its home care and personal care segments.

On the profitability front, Godrej Consumer Products expects the quality of profits to improve with sequentially expanding gross margins. The margins are lower on a year-over-year basis due to unprecedented cost inflation, it said.

"In line with our strategy of driving category development, we had sequentially higher marketing spends. The net result would be a dilution in operating margins during the quarter, on a year-over-year basis," the company added.

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CLSA said the company's Indonesia business is likely to be stressed with weak profitability. GAUM or Godrej Africa, USA, Middle East would sustain double-digit growth, according to the brokerage.

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(Edited by : Akanksha Upadhyay)

First Published:Jan 7, 2022 11:03 AM IST