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Godrej Consumer may gain market share in Nigeria on naira fall

BoAML sees an impact of less than 2 percent on GCPL‘s FY17 earnings per share (EPS) due to a pressure on margins in the Nigeria business in the near term and loss in translation to Indian rupee.

June 17, 2016 / 12:17 PM IST
 
 
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Moneycontrol Bureau Concerns rise for companies that have business in Nigeria as the country's currency may be devalued. Though Godrej Consumer Products (GCPL) gets 4 percent of its consolidated revenue/EBITDA from Nigeria, Bank of America Merrill Lynch says that naira devaluation is manageable. It sees an impact of less than 2 percent on GCPL’s FY17 earnings per share (EPS) due to a pressure on margins in the Nigeria business in the near term and loss in translation to Indian rupee.Infact it feels naira devaluation may help GCPL gain market share in Nigeria as importers, which form over 30 percent of the market, will be severely hit. Nigeria's central bank will allow its currency value to be determined by market forces after removing 16-month peg which tied it to a fixed figure. The new policy will take effect from June 20 and will effectively devalue the naira. Nigeria's central bank previously pegged the naira at 197 to the US dollar but the currency trades much lower in the black market as a slump in oil revenues has hammered public finances and eroded foreign currency reserves.BoAML maintains buy rating with a target price of Rs 1620 given GCPL’s dominance in untapped segments across its markets and a resilient EPS growth trajectory.“Negative effects on Nigeria business from currency devaluation are likely to be loss in translation to Indian rupee, a rise in manufacturing costs as over 50 percent  of raw material costs in the African business are in USD terms and a temporary uncertainty over demand,” BoAML says in a note. According to BoAML, distribution, larger target market and improved cost structure are likely to put GCPL on a resilient growth path in the medium term. At 12:05 hrs Godrej Consumer Products was quoting at Rs 1,496.00, up Rs 5.80, or 0.39 percent on the BSE. Posted by Nasrin SultanaFollow @NasrinzStory

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