5 February 2015
3QFY15 Results Update | Sector:
Consumer
Godrej Consumer
BSE SENSEX
28,851
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INR M)/Vol ‘000
Free float (%)
S&P CNX
8,712
GCPL IN
340.3
1,134/701
8/17/7
160/181
36.7
CMP: INR1,078
TP: INR1,200 (+11%)
Neutral
M.Cap. (INR b) / (USD b) 366.7/5.9
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Gr. (%)
2015E 2016E 2017E
83.2
13.5
9.0
26.4
21.8
97.2
18.1
12.3
36.0
36.5
158.7
22.7
25.8
29.9
6.8
114.0
21.5
14.9
43.7
21.3
191.9
22.8
26.8
24.7
5.6
BV/Sh.(INR) 133.2
RoE (%)
19.8
RoCE (%)
P/E (x)
P/BV (X)
21.8
40.8
8.1
Estimate change
TP change
Rating change
5%
9%
Godrej Consumer’s 3QFY15 results were ahead of expectations with consolidated
sales growth of 12.5% to INR22.3b (est. INR22.8b), EBITDA growth of 26.5% to
INR3.9b (est. INR3.6b) and Adj. PAT growth of 34.8% at INR2.6b (est. INR2.3b).The
performance was led by broad based improvement in International division.
Consolidated organic constant currency sales posted healthy 16% growth with
12% growth in domestic entity and 20% growth in international business.
Consol Gross margins expanded modest 30bp YoY to 53.6% (despite strong 350bps
expansion in domestic entity). EBITDA margins expanded 200bp to 17.5% (est.
16%) on account of savings in other expenses (down 20bp YoY to 16.8%), ad
spends (down 170bp to 9.8%). Consequently, EBITDA reported robust 26.5% YoY
to INR3.9b. PBT and PAT posted 34% and 34.8% YoY growth, resp.
Standalone business
posted 12% YoY growth. According to management, GCPL’s
India business grew 1.6x of HPC growth rates. Home Insecticide registered 16%
sales growth (exit market share at all time high) while Hair care reported 10%
growth (37% growth in base quarter). Soaps revenues were up 11% while the
category growth was in low single digits, as per management.
International sales grew 12%
to INR 10.6b (20% organic constant currency
growth) primarily led by 19%, 25% and 36% constant currency sales growth in
Indonesia, LATAM and Africa, respectively. Organic constant currency EBITDA
grew 43%; margins expanded 260bp to 15% primarily due improved performance
in the Indonesian (up 330bs) and Latin American (up 270bps) entities.
Valuation and view:
We are revising our estimates upwards by 4-6% to bake in 3Q
beat. The stock trades at 29.9x FY16 and 24.7x FY16/17 EPS respectively, at a
discount to sector. GCPL’s 50% revenues come from International division which
has remained volatile. The discount to sector is warranted, in our view given the
higher exposure to international business and consequent higher volatility and
attendant currency risks. Maintain Neutral with revised target price of INR1200
(27x FY17 EPS, 20% discount to HUL). Spike in input cost and heightened
competitive intensity post commodity cost correction constitute key risks.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Godrej Consumer
Key Quarterly charts
Exhibit 1: Snapshot of 3Q15 performance
Growth (%)
Consolidated
India
International
Net Sales
Net Sales - Organic
Net Sales - Organic Constant Currency
EBITDA
EBITDA - Organic
EBITDA - Organic constant currency
Net Profit w/o exceptional and one off
12
12
16
27
25
28
35
12
12
12
18
18
18
16
13
12
20
43
35
43
90
Source: Company, MOSL
Exhibit 2: Consolidated revenue growth of 12.5% YoY, 2% below estimates
89.4
96.3
Consol Revenue Growth (%)
39.6
35.9 30.9 39.2
26.0 26.0 29.8 24.0 22.7
23.3
16.8 12.0
9.5
4.6
12.5
Source: Company, MOSL
Exhibit 3: HI posted 16% revenue growth in 3Q; gained share
Home Insecticide revenue growth (%)
30
28
27
20
28
26
24
25
17
8
9
2
16
Exhibit 4: Hair Colors posted 10% growth; impacted by high
base
Hair Colors revenue growth (%)
37
32
27
24
17
16 14
10
9
13
5
9
10
Source: MOSL, Company
Source: MOSL, Company
5 February 2015
2

Godrej Consumer
Exhibit 5: Soaps grew 11%, gained share
Soaps revenue growth (%)
42
31
30
24
Exhibit 6: Consol ad-spends down 170bp YoY
Consol ASP (%)
Standalone ASP (%)
20
17
13
3
6
1
2
13
11
Source: MOSL, Company
Source: MOSL, Company
Exhibit 7: Consolidated EBIDTA margin expanded 200bp YoY.. Exhibit 8: ..while standalone margin expanded 90bp YoY
54.7
54.0
Gross Margin (%)
EBITDA Margin (%)
53.6
52.6
52.0
52.0
17.4
12.7
16.1
17.5
16.4
18.3
14.5
17.6
17.2
13.5
Gross Margin (%)
52.3
52.3
51.6
52.3
51.6
EBITDA Margin (%) 55.1
51.7
19.8
52.0
51.8
18.6
18.1
53.5 53.7
53.3
16.6
16.0
13.0
15.1
15.5
Source: MOSL, Company
Source: MOSL, Company
Exhibit 9: International sales and EBIDTA breakup
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15
Net Sales (INR m)
Indian Subcontinent
International
Africa
Latin America
Megasari
Keyline
Total
EBITDA Margin (%)
Indian Subcontinent
International
Africa
Latin America
Megasari
Keyline
Total
7,777
8,963
9,216
9,254 9,231 10,243 10,447 10,327 9,775 10,912 11,671
6,110
7,070
7,697
7,770 8,030 9,410 9,350 9,050 8,890 9,200 10,290
1,440
1,630
2,260
1,780 2,140 2,500 2,910 2,460 2,500 2,740 3,790
1,080
1,270
1,500
1,410 1,300 1,540 1,680 1,510 1,260 1,470 1,690
2,710
3,160
3,240
3,430 3,190 3,610 3,430 3,440 3,490 3,660 3,900
730
680
500
990 1,150 1,380 1,110 1,150 1,640 1,330
910
13,887 16,033 16,913 17,024 17,261 19,653 19,797 19,377 18,665 20,112 21,961
14.1
14.5
19.0
3.0
18.0
13.0
14.3
16.4
13.8
16.0
4.0
19.0
9.0
15.2
16.9
16.2
20.0
8.0
20.0
5.0
16.6
18.6
13.3
7.0
9.0
19.0
13.0
16.2
14.6
11.2
13.0
3.0
15.0
9.0
13.0
17.3
12.6
13.0
7.0
17.0
10.0
15.0
17.0
13.8
18.0
9.0
16.0
6.0
15.5
18.8
15.4
15.0
20.0
18.0
9.0
17.2
13.5
12.1
14.0
4.0
15.0
9.0
12.8
18.5
13.8
11.0
13.0
18.0
9.0
18.7
16.6
18.0
11.7
19.3
8.3
17.7
16.4
Source: Company, MOSL
5 February 2015
3

Godrej Consumer
Consol sales growth: Sales up 12.5%; EBITDA margins expanded 200bp YoY
Consolidated sales grew 12.5% to INR22.3b (est.INR22.8b), with 4% currency
impact; while Indian Subcontinent and international business grew by 12% each.
Gross margins expanded 30bp YoY led by sharp correction in input costs. EBITDA
margins expanded 200bp to 17.5% (est. 13.2%) primarily led by lower ad spends
(down 170bp YoY) and other expenses (down 20bp YoY). Consequently, EBITDA
grew 26.5% YoY to INR3.9b (est. INR3.64b).
Higher other income (up 6% YoY to INR220m) coupled with lower interest cost
(down 18% YoY to INR253m) aided PBT growth of 33.9% YoY to INR3.6b.
Lower tax rate (down 30bps to 20.3%) further drove PAT growth to 34.7% to
INR2.6b (est. INR 2.3b).
INDIAN Subcontinent: Sales up 11.7%; EBIDTA margins expanded 90bp YoY
India business sales grew 11.7% YoY to INR11.7b. Home Insecticides (HI) posted
16% sales growth, ahead of the category while Hair Colors delivered 10% growth
(3Q14-37% growth). Soaps revenues were up 11% while the category continued
to grow in low single digits, as per management.
Gross margins expanded 360bp YoY to 55.1% led by sharp correction in prices of
crude and crude derivatives. We note that in FY10, GCPL’s gross margin had
expanded 900bp post an average drop of 17% YoY in crude prices and 19% YoY
drop in PFAD prices. It also benefited from excise duty cut. However, compared
to FY10, GCPL’s business mix has changed materially. International Business now
contributes ~50% of revenue. HI (not part of FY10 numbers) is now ~50% of
domestic revenue.
Higher staff costs (up 230bp YoY) and increased other expenses (up 100bp YoY),
partially offset by decline in ad spends (down 70bp YoY to 10.5%) meant EBITDA
margins expanded much lower vs. gross margins at 90bp to 18.1%. Thus, EBITDA
posted a 17.3% YoY growth on stand-alone basis to INR2.1b.
Standalone PAT grew 16.1% to INR 1.7b.
International business (48% of Cons Sales): Organic constant currency sales
growth 20%; EBITDA margin expanded 320bp YoY
International sales grew 13.3% YoY to INR10.6b, with a 20% organic constant
currency growth. EBITDA grew 39.5% to INR1.7b with 320bp YoY operating
margin expansion to 16.8%.
Indonesia (Megasari, 38% of Int. sales) posted 14% YoY growth, constant
currency growth rate of 19%. EBITDA margins were up 330bp YoY to 19.3% led
by price hikes, cost efficiencies and lower ad spends.
Africa (37% of Int. Sales, includes Rapidol, Kinky, Tura and Darling Group)
reported sales of INR3.8b (up 36% in constant currency and 30% in local terms).
Latin America (16% of Int. sales) sales increased 1% YoY (grew 25% in constant
currency) to INR1.7b. EBITDA margins expanded 270bp YoY to 11.7% primarily
on implementation of Project Iceberg.
Europe (Keyline, 9% of Int. sales) sales decreased 13% in constant currency
terms (reported sales down 18%) to INR910m due to counterfeits in one of the
leading brands that the company distributes.
5 February 2015
4

Godrej Consumer
Valuation and view
We are revising our estimates for FY16 and FY17 upwards by 4-6% to factor in
the 3QFY15 beat. Uptick in domestic consumer demand and benign raw
material environment are key near-term positives for GCPL.
The stock trades at 29.9x FY16 and 24.7x FY16/17 EPS respectively, at a discount
to sector.
GCPL’s ~50% revenues come from International division which has remained
volatile over the years. The discount to sector is warranted, in our view given
the higher exposure to international business and consequent higher volatility
and attendant currency risks. Maintain Neutral with revised target price of
INR1200 (27x FY17 EPS, 20% discount to HUL). Spike in input cost and
heightened competitive intensity post commodity cost correction constitute key
risks.
Exhibit 10:
Revised
estimate up by 4-6%
INR M
Sales
EBITDA
PAT
Old
85,304
13,425
9,038
FY15E
New
83,213
13,532
8,983
Change
-2.5%
0.8%
-0.6%
Old
100,332
17,144
11,795
FY16E
New
97,244
18,060
12,259
Change
-3.1%
5.3%
3.9%
Old
116,450
20,151
14,037
FY17E
New
Change
114,046
-2.1%
21,547
6.9%
14,868
5.9%
Source: Company, MOSL
Exhibit 11: GSK consumer P/E (x)
48.0
38.0
28.0
18.0
8.0
9.2
PE (x)
Peak(x)
38.4
33.8
20.6
Avg(x)
Min(x)
Exhibit 12: GSK consumer P/E premium vs. Sensex
220
120
33.1
20
-80
114.5
GSK Consumer PE Relative to Sensex PE (%)
LPA (%)
Source: Company, MOSL
Source: Company, MOSL
5 February 2015
5

Godrej Consumer
Corporate profile
Company description
GCPL is the second largest player in the INR90b
Toilet Soaps category, with a market share of
~10%. Company is the market leader in INR10b hair
dye/color segment, with a market share of ~35%.
Its international business now constitutes 36% of
consolidated revenue.
Exhibit 13: Sensex rebased
Exhibit 14: Shareholding
pattern
(%)
Dec-14
Promoter
DII
FII
Others
63.3
1.9
29.0
5.9
Sep-14
63.3
1.8
29.0
5.9
Dec-13
63.3
1.4
28.9
6.5
Exhibit 15: Top
holders
Holder Name
Baytree Investments ( Mauritius) PTE Ltd
Aberdeen Global Indian Equity Mauritius Ltd
Arisaig Partners Asia PTE Ltd A /c Arisaig India Fund
National Westminster Bank Plc As Depositary of First
Life Insurance Corporation Of India
% Holding
3.7
3.5
2.7
2.6
1.3
Note: FII Includes depository receipts
Exhibit 16: Top
management
Name
Adi Godrej
Vivek Gambhir
Nadir Godrej
Jamshyd N Godrej
Tanya Arvind Dubash
Nisaba Godrej
Designation
Chairman & Wholetime Director
Managing Director
Director
Director
Director
Executive Director
Exhibit 17:
Directors
Name
Adi Godrej
Vivek Gambhir
Nadir Godrej
Jamshyd N Godrej
Tanya Arvind Dubash
Aman Mehta*
D Shivakumar*
Name
Bharat Doshi*
Omkar Goswami*
Narendra Ambwani*
Bala Balachandran*
Nisaba Godrej
A Mahendran
Ireena Vittal*
*Independent
Exhibit 18:
Auditors
Name
Kalyaniwalla & Mistry
P M Nanabhoy & Co
Type
Statutory
Cost Auditor
Exhibit 19: MOSL
forecast
v/s consensus
EPS
(INR)
FY15
FY16
FY17
MOSL
forecast
26.4
36.0
43.7
Consensus
forecast
26.6
32.7
39.1
Variation
(%)
-0.7
10.0
11.9
5 February 2015
6

Godrej Consumer
Financials and valuations
Income Statement
Y/E March
Net Sales
Change (%)
Cost of Goods Sold
Gross Profit
Margin (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Interest Income
Other Income-rec.
forex gain/(loss)
PBT
Change (%)
Tax
Deferred Tax
Tax Rate (%)
PAT
Change (%)
Margin (%)
Minority interest
Group Adjusted PAT
2010
20,412
46.5
9,463
10,949
53.6
16,329
4,083
100.4
20.0
236
111
270
193
0
4,199
100.8
796
-8
19.1
3,396
96.8
16.6
0
3,396
2011
36,430
78.5
17,488
18,942
52.0
29,970
6,460
58.2
17.7
499
519
268
408
0
6,118
45.7
1,298
-4
21.3
4,816
41.8
13.2
0
4,661
2012
48,662
33.6
23,156
25,506
52.4
40,108
8,554
32.4
17.6
644
658
398
122
221
7,894
29.0
2,279
19
28.6
5,633
17.0
11.6
245
5,206
2013
64,163
31.9
30,216
33,947
52.9
54,339
9,824
14.8
15.3
770
775
350
328
0
8,957
13.5
1,919
127
20.0
7,165
27.2
11.2
493
6,506
2014
76,024
18.5
35,547
40,477
53.2
64,521
11,503
17.1
15.1
819
1,074
285
342
0
10,238
14.3
2,167
63
20.5
8,134
13.5
10.7
596
7,374
2015E
83,213
9.5
38,458
44,755
53.8
69,681
13,532
17.6
16.3
872
1,023
431
406
0
12,474
21.8
2,637
-104
22.0
9,733
19.6
11.7
750
8,983
2016E
97,244
16.9
42,935
54,309
55.8
79,184
18,060
33.5
18.6
1,088
1,086
477
471
0
16,833
34.9
3,566
-139
22.0
13,129
34.9
13.5
870
12,259
(INR Million)
2017E
114,046
17.3
49,421
64,624
56.7
92,499
21,547
19.3
18.9
1,231
1,125
541
548
0
20,279
20.5
4,283
-168
22.0
15,828
20.6
13.9
960
14,868
Balance Sheet
Y/E March
Share Capital
Reserves
Minority Int
Networth
Loans
Deferred Liability
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Goodwill
Non Curr Investments
Current Investments
Currents Assets
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Other Current Assets
Curr. Liab. & Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Net Assets
E: MOSL Estimates
2010
308
9,239
9,547
369
66
9,982
4,149
1,531
2,617
8
3,119
670
0
9,095
2,644
1,153
3,052
2,189
58
5,528
1,370
4,041
117
3,567
9,982
2011
324
16,928
0
17,252
20,032
86
37,369
19,148
3,775
15,373
154
15,404
0
0
13,774
4,394
3,840
2,269
3,149
122
7,335
3,331
3,915
89
6,439
37,370
2012
340
27,699
882
28,922
18,769
5
47,696
20,403
4,940
15,464
376
21,454
0
635
22,058
7,839
4,725
5,774
3,645
75
12,290
7,702
4,160
428
9,767
47,696
2013
340
32,790
2,095
35,226
24,563
140
59,929
21,575
5,699
15,876
1,409
29,085
0
1,212
29,510
10,471
7,288
7,756
3,956
39
17,162
10,348
6,388
426
12,348
59,929
2014
340
37,414
2,251
40,005
23,728
203
63,937
22,511
6,821
15,689
1,671
35,525
343
1,020
29,157
10,821
7,113
7,454
3,744
25
19,468
12,344
6,737
387
9,689
63,936
2015E
340
41,983
3,001
45,324
22,228
307
67,860
27,261
7,694
19,567
1,671
35,525
343
1,020
30,844
11,855
7,979
7,001
3,978
30
21,109
13,502
7,220
387
9,735
67,860
2016E
340
49,783
3,871
53,995
21,728
446
76,169
32,011
8,782
23,228
1,671
35,525
343
1,020
37,731
13,854
9,325
9,746
4,770
36
23,348
15,066
7,896
387
14,383
76,169
2017E
340
60,129
4,831
65,300
21,228
614
87,142
37,311
10,013
27,297
1,671
35,525
343
1,020
47,653
15,623
10,936
15,331
5,720
44
26,366
17,337
8,642
387
21,288
87,143
5 February 2015
7

Godrej Consumer
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2010
11.0
11.8
31.0
4.1
37.1
97.8
91.5
16.1
80.5
34.8
0.4
35.6
45.2
21
7.8
2011
14.4
15.9
53.3
5.0
35.0
74.8
67.6
10.1
56.7
20.2
0.5
27.0
19.7
38
2.3
2012
15.3
17.2
85.0
1.7
11.4
70.5
62.7
7.8
44.4
12.7
0.2
18.0
19.5
35
3.1
2013
19.1
21.4
103.5
2.0
10.5
56.4
50.4
6.0
39.0
10.4
0.2
18.5
18.2
41
3.7
2014
21.7
24.1
117.5
2.3
10.4
49.7
44.8
5.0
33.3
9.2
0.2
18.4
19.8
34
4.4
2015E
26.4
29.0
133.2
10.0
37.9
40.8
37.2
4.6
28.2
8.1
0.9
19.8
21.8
35
3.9
2016E
36.0
39.2
158.7
10.0
27.8
29.9
27.5
3.9
21.0
6.8
0.9
22.7
25.8
35
3.9
2017E
43.7
47.3
191.9
10.0
22.9
24.7
22.8
3.3
17.3
5.6
0.9
22.8
26.8
35
3.9
0.0
1.2
0.6
0.7
0.6
0.5
0.4
0.3
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Net interest
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Extraordinary Items
Inc in FA
Pur of Investments
Goodwill
CF from Investments
Issue of Shares
Inc in Debt
Dividend Paid
Other Income
Interest Paid
Other Item
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2010
4,435
-82
-796
-270
3,287
0
-763
-595
-986
-2,344
51
-2,406
-1,490
464
-111
1,817
-1,675
-731
3,783
3,052
2011
6,617
111
-1,298
-3,654
1,776
331
-15,144
670
-12,285
-26,429
15
19,663
-1,966
676
-519
6,001
23,870
-783
3,052
2,269
2012
8,538
536
-2,279
176
6,971
2,002
-1,478
0
-6,050
-5,526
17
-1,263
-596
520
-658
4,040
2,060
3,505
2,269
5,774
2013
9,727
447
-1,919
-598
7,657
1,289
-2,205
0
-7,630
-8,546
0
5,794
-681
678
-775
-2,145
2,872
1,983
5,774
7,756
2014
11,057
732
-2,167
2,357
11,978
59
-1,197
-343
-6,440
-7,921
0
-835
-766
627
-1,074
-2,311
-4,358
-302
7,756
7,454
2015E
13,346
617
-2,637
-499
10,827
0
-4,750
0
0
-4,750
0
-1,500
-3,982
837
-1,023
-863
-6,530
-453
7,454
7,001
2016E
17,921
615
-3,566
-1,903
13,068
0
-4,750
0
0
-4,750
0
-500
-3,982
948
-1,086
-954
-5,574
2,744
7,001
9,745
(INR Million)
2017E
21,511
577
-4,283
-1,320
16,485
0
-5,300
0
0
-5,300
0
-500
-3,982
1,089
-1,125
-1,084
-5,602
5,583
9,746
15,329
5 February 2015
8

Godrej Consumer
NOTES
5 February 2015
9

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Godrej Consumer
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