Target: ₹2,383

CMP: ₹2,045.35

We recently met the management of Godfrey Phillips (GP). Management opined, given lower rural demand cigarette consumption in recent months saw some pressure driving way for rising competitive intensity (trade discounting). GP’s focus on RSFT segment coupled with solid growth in Marlboro franchise helped the company to maintain momentum. Further seizures from regulatory authorities, curtail the impact of illicit and counterfeits.

Management said, its core states contributing to about 70 per cent of sales such as J&K/Mah/Guj/Raj/PJB saw reasonable growth. To improve its RSFT offerings GP recently launched few new cigarettes with double capsule. Management expects good recovery in cigarette volumes in H2-FY24.

Given lower prices for non-FCV (Burley) tobacco in India, GP expects strong exports of unmanufactured tobacco in H2-FY24 (+20 per cent). With clear focus on cutting losses, TFS business (146 stores) witnessing steady footfalls. With rising sales for Marlboro, IPM (JV) saw strong profitability after wiping out losses by declaring dividend income to GP, which may continue in our view.

We retain BUY, with DCF-based target price of ₹2,383.