Date:09/03/2005 URL: http://www.thehindubusinessline.com/2005/03/09/stories/2005030902201300.htm

Back Godfrey Phillips jumps on growth hopes

Jayanta Mallick

Kolkata , March 8

THE Godfrey Phillips India (GPI) stock is burning bright on the bourses. The stock today gained by over 7 per cent at Rs 627.40 on the NSE. Interestingly, the 2005-06 Budget proposals for clamping a 10-per cent excise duty on cigarettes have not affected the tobacco stocks much.

The GPI stock has moved up from Rs 550 on the last trading day before Budget to the current level after creating a new 52-week high of Rs 650.

According to market analysts, as the excise-led price increase would be passed on to the consumers, market has chosen to ignore this element as a negative concentrate on the fundamentals of each tobacco stock and its growth prospects.

According to Mr Ajit Day of Dayco Securities, three factors are behind improved valuation of the GPI stock - very limited liquidity, strong fundamentals including cash flow and growth prospects.

According to industry sources, however, the excise duty definitely has hurt sales. "To overcome the shortfall, each company has to make additional effort to make sales grow," the source added.

Mr Sundeep Kumar, Senior Vice-President (corporate affairs) of GPI, said the company was looking at geographical expansion in the domestic market and placing additional thrust on exports. "We have 12 per cent market share by only covering 45 per cent of the geographical area of the country. We are also planning to be present in more segments and price points. The newly established exports division is meant to accelerate growth in exports, particularly to growing emerging markets," he added.

Exports currently contribute to about 15 per cent and the tea business around 7 per cent to GPI's turnover.

GPI sees growth prospects in cigarette and tobacco business despite a kind of "social censorship" on smoking. It has embarked on an investment plan of Rs 600 crore to modernise its Ghaziabad plant over next five years. Around Rs 114 crore has been infused in the fiscal 2004-05.

GPI has embarked on a plan to emerge as a leader in the Indian cigar market, which is growing at a scorching pace of 25 per cent annually, Mr Pradip Hotchandani of Anagram Stockbroking observed. "GPI, which has tied up with Altadis of the US, has already grabbed over 35 per cent of the market share in the country," he added.

At today's closing price, the stock traded at 11.6 times its trailing 4-quarter EPS of 54.4. GPI stock's dividend yield stands at 3 per cent. "Compared to the market leader, ITC, its current valuation appears to be fair one, based on fundamentals", a fund manager added.