Rs 44/Share Dividend: Brokerage Sees 19% Upside In Midcap Tobacco Stock That Will Pay 2200% Dividend Ahead

Midcap stock, Godfrey Phillips India is seen to rise nearly 19% on exchanges after its stellar performance in the June 2023 quarterly earnings. Not just that, Godfrey Phillips will also be in focus in the trading week from August 6th to 11th as it will turn ex-dividend for a dividend payout of a whopping 2200%. Currently, the stock is a little over Rs 2000 per share mark on BSE.

On Friday, Godfrey Phillips stock ended at Rs 2003.50 apiece, down by Rs 28.30 or 1.4% on BSE. Its market cap was nearly Rs 10,417 crore.

The company has declared a final dividend of 2200% aggregating to Rs 44 per share having a face value of Rs 2 each for the financial year ended March 31, 2023.

As per the regulatory filing, the Register of Members and Share Transfer Books of the Company will remain closed from Saturday, 12th August 2023 to Friday, 1st September 2023 (both days inclusive) for the purpose of the Annual General Meeting and Dividend for the Financial Year ended 31st March 2023.

Hence, the record date for the dividend payout is August 11.

The company plans to pay the dividend within a period of 30 days from the date of the Annual General Meeting to those members whose names appear in the Register of Members as on the Record date of Friday, 11th August 2023.

After the Q1 results, in its research report, Centrum highlighted that Godfrey Phillips (GP) reported Q1FY24 results beat our estimates; Revenue/EBITDA/PAT grew 26.2%/ 21.0%/ 115.5% respectively. Gross revenues in Tobacco grew 28.7%, backed by 8.1% volume growth in cigarettes and 120% growth in leaf tobacco exports to Rs3.1bn, whilst non-tobacco (TFS+Funda Goli) grew 8.1%. GP's performance was driven by, (1) a clear focus on the cigarette business, (2) expanded distribution for Marlboro led to a 30% contribution, (3) strong exports of leaf tobacco and (4) PMI (associate company) now wiped out losses and fuelled dividend income. Gross margin declined by 510bp to 46.5% due to higher RM inflation coupled with higher exports of leaf tobacco and cigarettes. EBITDA at Rs2.4bn grew by 21.0% despite higher other expenses (+23.9%) and employee cost (+11.8%) settling EBITDA margin at 23.2% (-100bp).

It added that GP has a strong focus on the RSFT segment, yet expanded its footprint for TFS (146 stores) to reflect lowering losses.

Thereby, on the valuation, the brokerage's note said, "In line with our argument, the cigarette industry witnessed strong volume growth in FY23 led by premiumsiation (Marlboro) and higher sales in RSFT segment, and the trend would continue in FY24 as well. We believe strong tailwinds for RSFT segment and also Marlboro entry into the DSFT segment (64mm). With increased footprint for TFS we expect operating leverage to drive profitability, yet cut losses. We remain hopeful on rural recovery which could provide strong tailwinds for GP. Considering dividend income from associate and lower losses in TFS, we increased earnings for FY24E/25E by 13.6% each with a revised DCF-based TP Rs2,383 (implying 13.6x FY25E EPS). Risk: sharp increase in taxation and higher competition."

From the current market price, Godfrey Phillips has a potential for nearly 19% upside ahead.

Disclaimer

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