The company will be evaluated considering a group of 5 peer companies according to the market classifications. Godrej Consumer shares relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars). From this, we will arrive at a combined peer rating for the company. Companies considered in this analysis are as follows.
- Godrej Consumer
- Dabur India
- Jyothy Labs
About the Company:
Godrej Consumer Products Limited (GCPL) is an Indian consumer goods company based in Mumbai, India. GCPL’s products include soap, hair colourants, toiletries and liquid detergents. It has a history of 120+ years and today has a presence in 90+ countries and touches the life of 1.15 billion citizens.
The company operates in the FMCG industry where market dominance comes from scale, distribution and branding. The company has 123 years of market presence in India and reaches 1.15 billion people across Asia, Africa and Latin America. Godrej consumer products manufacture products for Hair Care, Home Care and Personal care and own some of the largest brands like GoodNight, Godrej Aer, Hit, Ezee, Cinthol etc. Some of the brands are market leaders and others have seen a rapid market size growth which is a good indicator for the company.
Read More Here: Godrej Consumer Fundamental Analysis and Future Outlook
Get the Excel Dashboard used for this analysis from below:
1. Market Capitalization (★ ★ ★ ★ ☆)
Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, Godrej Consumer has second-highest market capitalization followed by Marico, Emami and Jyothy Labs. This shows it has the second-highest Enterprise Value amongst the peers. Therefore this category gets 4 stars in Godrej Consumer shares relative valuation.
2. Price/Earnings Ratio (★ ★ ★ ☆ ☆)
The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued. Godrej Consumer shares have the Third-highest P/E and its way still above the industry average and hence its shares are overvalued. Therefore this category gets 3 stars in Godrej Consumer shares relative valuation.
3. Price/Book Value Ratio (★ ★ ★ ☆ ☆)
The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. Lower than average P/B shows overvalued and higher P/B shows undervalued. Godrej Consumer shares have the third-highest P/B amongst the competitors which is below the industry average. Therefore this category gets 3 stars in Godrej Consumer shares relative valuation.
4.Dividend Yield (★ ★ ☆ ☆ ☆)
The dividend yield of a share is the dividend per share, divided by the price per share. This shows how much dividend the company pays out. Dividend yield above-average line is considered good and vice versa. Godrej Consumer has the second-lowest dividend yield amongst its competitors. Therefore this category gets 2 stars in Godrej Consumer shares relative valuation.
5.Price/Sales Ratio (★ ★ ☆ ☆ ☆)
The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. Godrej Consumer has the second-highest P/S ratio amongst its competitors which makes its shares highly overvalued. Therefore this category gets 2 stars in Godrej Consumer shares relative valuation.
6.ROCE (★ ★ ★ ☆ ☆)
ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use. A higher ROCE implies a more economical use of capital and above-average ROCE is considered a good investment. Godrej Consumer has the Third-highest ROCE amongst its competitors and it is below the average line. Therefore this category gets 3 stars in Godrej Consumer shares relative valuation.
7. Return on Assets (★ ★ ★ ☆ ☆)
The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. Higher the ROA better is the asset utilization by the company and higher the efficiency. Godrej Consumer has the Third-highest ROA amongst its competitors and it is below the average line. Therefore this category gets 3 stars in Godrej Consumer shares relative valuation.
8. Price/ FCF Ratio (★ ★ ★ ☆ ☆)
This is calculated by dividing market capitalization by free cash flow of the company. A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. Godrej Consumer has the highest Price/FCF ratio amongst its peers and its way above the Industry average line. This shows that Godrej Consumer shares are fairly valued. Therefore this category gets 3 stars in Godrej Consumer shares relative valuation.
9. Earnings Per Share (★ ★ ★ ★ ★)
Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. Higher the EPS higher is profitability. Godrej Consumer is in the 1st position with EPS also higher than the industry average. Therefore this category gets 5 stars in Godrej Consumer shares relative valuation.
10.Return on Equity (★ ★ ★ ☆ ☆)
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. Godrej Consumer has the 3rd highest ROE amongst the Peers and its also below the industry average. Therefore this category gets 3 stars in Godrej Consumer shares relative valuation.
The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5. The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star). The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.
Overall Relative Rating:
GODREJ CONSUMER SHARES (3.1/5)
This means the stock is Fairly Valued
★ ★ ★ ☆ ☆
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|Relative Valuation Summary|
|Market Capitalization||★ ★ ★ ★ ☆|
|Price/ Earnings Ratio||★ ★ ★ ☆ ☆|
|Price/ Book Value Ratio||★ ★ ★ ☆ ☆|
|Dividend Yield||★ ★ ☆ ☆ ☆|
|Price to Sales||★ ★ ☆ ☆ ☆|
|ROCE||★ ★ ★ ☆ ☆|
|ROA||★ ★ ★ ☆ ☆|
|Price/ Cashflow||★ ★ ★ ☆ ☆|
|Earnings Per Share||★ ★ ★ ★ ★|
|ROE||★ ★ ★ ☆ ☆|
|Overall Peer Rating||★ ★ ★ ☆ ☆|
(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)