Godfrey Phillips extends gain on strong Q3 results

Analyst at Nirmal Bang advises investors to BUY the stock for a further return of 10-15% from here on.

Godfrey Phillips India Limited (GPIL) is trading higher by 6% to Rs 2,905, extending its nearly 9% rally in past two trading sessions, after reporting a strong 43.8% year-on-year (yoy) growth in net profit at Rs 70.74 crore for the third quarter ended December 31, 2013 (Q3FY14). The company had profit of Rs 49.21 crore in the same quarter last fiscal.

Total income from operations grew 18.5% at Rs 640 crore on yoy basis. EBITDA or operating margin improved by 490bps YoY to 21.3% in Q3FY14 owing to decline in input cost and jump in net revenue.

GPIL has reported a magnanimous jump in Cigarette EBIT margin by 500bps YoY and by 470bps QoQ to 20.6% in Q3FY14, suggesting recovery in cigarette volumes and price hike, says analyst at Nirmal Bang.

On a trailing basis, GPIL is trading at a discount compared to ITC and VST by +50% and +17% respectively.

Analyst feels that the discount is unwarranted given the sharp improvement in the Cigarette EBIT margins in the last two quarters. In addition, the increase traction in 64mm cigarette will keep the uptick in the volumes going forward without diluting its margins.

With sharp improvement in the Cigarette EBIT margins, expect cigarette volume recovery based on the belief that the year is unlikely to see any significant hike in excise duty, attractive valuations, analyst advises investors to BUY the stock for a further return of 10-15% from here on.

Meanwhile, on February 5, 2014 IDFC Premier Equity Fund has bought 250,000 shares of GPIL at price of Rs 2,760 per share through open market transaction.

Royal Bank of Scotland has sold 185,164 shares of the company at an average market price of Rs 2,763.33 per share, the BSE and NSE bulk deal data shows.

The stock opened at Rs 2,800 and touched a high of Rs 2,935 on the BSE. A combined around 22,300 shares have changed hands on the counter so far on the BSE and NSE.