Godrej Consumer: Buy,or sell

Slowing domestic sales may hurt Godrej Consumer,while competition,costs remain a worry.

And that means investors in its stock need to worry. After having made progress against much bigger multinational companies,the Indian consumer giant is facing a challenge that was till now taken for granted sales.

Shares in Godrej Consumer Ltd outperformed the benchmark index in FY10,riding on robust overseas growth,but the outlook is cautious as domestic sales have started to show signs of slowing down.

Its shares gained 97 percent in the 12 months to March 2010,compared with a 80 percent rise in the 30-share benchmark BSE index.

However,Godrej shares have fallen more than 15 percent since hitting a lifetime high on April 16 as sagging domestic growth has been worrying investors.

HOLD 8211; DOMESTIC WORRIES EMERGE

A slowdown in Godrej8217;s domestic soap sales,one of its flagship products,has triggered caution among analysts. They slipped 5 percent in Jan-March from a 46 percent jump a year ago.

Godrej Consumer,which makes and sells several brands across soaps,hair care and toiletries segments,is best known for its flagship brand 8216;Cinthol8217; and 8216;Godrej Expert Hair Dye8217;.

The main area of concern is the lower sales growth trajectory in the domestic soap segment as this contributes to 60 percent of their total standalone revenues,said Ashish Upganlawar,an analyst with Sharekhan.

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And then there are concerns over higher raw material costs in the coming months,Upganlawar said.

Brokerage Sharekhan cut its rating on the stock to 8216;hold8217; from 8216;buy8217;,in its post-earnings report. Batlivala amp; Karani,that has an 8216;underperformer8217; rating,expressed similar concerns.

Out of the seventeen brokerages covered,nine have a 8216;hold8217; rating on the stock.

As rising competition from Hindustan Unilever Ltd HUL makes market share gains difficult,we expect this segment to witness moderation in growth,Bamp;K said after the quarterly results.

BUY 8211; STRONG OVERSEAS GROWTH

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Robust growth in the international operations driven by acquisitions and a wide product portfolio has ensured the stock remains a favourite with analysts.

Eight brokerages have a 8216;buy8217; rating on the stock,of which four rate it as a 8216;strong buy8217;.

The stock has significant triggers for sustained performance and has a potential upside from further acquisitions,said Anand Shah,an analyst with Angel Broking,who has an 8216;accumulate8217; rating on the stock.

The firm,which is on an aggressive overseas expansion spree,announced two major acquisitions in the fourth-quarter and its international business grew a robust 19 percent year-on-year. Its consolidated profit in FY10 grew 97 percent,compared with rival Dabur which posted a rise of 29 percent.