14 September 2020
A
nnual
R
eport
T
hreadbare
GODREJ CONSUMER PRODUCTS – FY20
GCPL’s FY20 Annual Report analysis highlights a muted operating
performance. EBITDA increased marginally by 1.2% to INR21.4b,
primarily due to the outbreak of COVID-19. The India and GAUM
(Godrej Africa, US, Middle East) businesses were impacted, while
Indonesia delivered robust growth. The company recognized
exceptional loss of INR.0.8b, primarily on account of the
impairment of goodwill/intangibles. We note that the company
changed the estimates for carrying out the impairment evaluation
of intangibles/goodwill, which stood at INR79.7b – 101% of NW.
GCPL’s earnings to cash flow conversion declined to 90% (FY19:
102%) on account of increased working capital requirements in
India and Africa. OCF post-interest declined to INR14.4b (FY19:
INR15.1b). Standalone RoCE declined to 65% (FY19: 86%) due to a
weak operating performance, coupled with an increase in capital
intensity (financed partially by incremental debt). This led to
consolidated RoCE declining to 18.7% (FY19: 20.1%).
Indonesia supports performance in a challenging
environment:
Indonesia posted healthy 17% EBITDA (adj.)
growth to INR4.5b. Conversely, India EBITDA (adj.) fell 4.2% to
INR14.2b and GAUM EBITDA (adj.) declined 14.6% to INR2.4b.
Declines in India and GAUM were primarily attributable to the
advent of COVID-19 in 4QFY20. For the first three quarters of
FY20, India witnessed (adj.) EBITDA growth of 2% to INR11.2b,
while GAUM EBITDA (adj.) remained flattish at INR2.2b.
Impairment losses recognized; estimates to assess
recoverable value changed:
In FY20, the company recognized
exceptional loss of INR0.8b, primarily on account of
impairment loss on goodwill/intangible assets in Argentina (of
INR0.3b) and Africa (INR0.4b). It also reduced estimates for
discount rates (to 6.67–20.8% from 11.9–24.6% in FY19) and
terminal growth rate (to 2–7% from 3–8% in FY19) during the
year, used for assessing the recoverable value. Furthermore,
the stipulated express forecast period for Africa was increased
to 10 years from 5 years.
Working capital requirements rise:
The consolidated cash
conversion cycle increased to 22 days in FY20 from 16 days in
FY19 due to a rise in the number of inventory days (to 63 days
from 55 days in FY19), primarily in India and Africa. While the
consolidated payable days remained flattish (at 91 days v/s 90
in FY19), it declined significantly in the standalone entity (to 83
days v/s 94 days in FY19). This was more than offset by an
increase in payables for subsidiaries. Over the last few years,
the cash conversion of subsidiaries has improved significantly
(64 days in FY20 v/s 99 days in FY18), largely led by an increase
in payable days (102 days in FY20 v/s 72 days in FY18).
The
ART
of annual report analysis
India /Africa performance
remained muted (ex-
COVID), while it
continued to be robust
for Indonesia.
Intangibles (incl.
goodwill) stood at
INR80b, 1x NW.
Impairment loss of INR0.7b was recognized on
intangibles/goodwill in Africa/Argentina;
impairment estimates have been changed.
Standalone RoCE declined to 65% (FY19: 86%)
on a weak operating performance, coupled
with an increase in capital intensity.
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
GCPL IN
1,022
706.7 / 9.5
772 / 425
-1/12/7
990
Shareholding pattern (%)
Promoter
Jun-20
63.2
Mar-20
63.2
Jun-19
63.3
DII
FII
Others
3.2
26.8
6.8
3.1
26.3
7.3
2.2
28.0
6.6
Note: FII Includes depository receipts
Stock Performance (1-year)
Auditor’s name
B S R & CO LLP
Research analyst
Sandeep Ashok Gupta
(S.Gupta@MotilalOswal.com)
Umesh Jain
(Umesh.Jain@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.