2 May 2013
4QFY13 Results Update | Sector: Consumer
Godrej Consumer Products
BSE Sensex
19,504
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
5,930
GCPL IN
340.3
284.6/5.3
936/465
4/10/42
CMP: INR836
TP: INR800
Neutral
Financials & Valuation (INR b)
Y/E March
2013 2014E 2015E
Sales
63.9
78.3
90.9
EBITDA
10.0
13.6
16.1
Adj. PAT
6.7
8.9
11.1
Adj. EPS (INR) 19.6
26.3
32.5
EPS Gr. (%)
26.7
33.9
23.8
BV/Sh.(INR)
93.7 108.2 129.1
RoE (%)
20.9
24.3
25.2
RoCE (%)
24.8
30.1
31.5
Payout (%)
40.8
38.1
30.8
Valuations
P/E (x)
36.1
27.0
21.8
P/BV (x)
7.6
6.5
5.5
EV/EBITDA (x) 25.4
18.5
15.5
Div. Yield (%)
1.1
1.4
1.4
Godrej Consumer's (GCPL) 4QFY13 consolidated results are below estimates
due to sharp margin contraction in international and domestic business. Sales
grew 30% to INR17.15b (est INR16.39b), while EBITDA margin declined 260bp
to 16% (est 19.1%) and adj PAT grew 22.4% to INR2.05b (est INR2.2b).
Consolidated sales growth of 30% to INR17.15b (est INR16.39b) was led by
19% organic sales growth; 18% growth in Indian subcontinent business and
23% growth in international business.
Gross margin was up 150bp to 55.1%; 120bp increase in ad spends to 9.5% and
280bp increase in other expenditure to 19.6% dragged EBITDA margin down
by 260bp to 16% (est 19.1%).
India business reported sales of INR9.2b, up 18% YoY, driven by Home
Insecticide (up 26%) and Hair Care (up 27%), while Soaps posted 17% sales
growth (volume growth of 4%). Hair Colors performance has shown significant
improvement post the relaunch of
Expert.
Hair Colors has posted 2x category
growth and outperformed the category after many quarters.
Stand-alone gross margin expanded 340bp to 54.5% on account of correction
in palm oil prices and significant mix improvement due to strong growth in
Hair Colors and Home Insecticides. However, EBITDA margin declined 115bp
YoY at 18.3%, led by higher ad spends (up 120bp) and other exp (up 500bp).
International sales grew 49% to INR7.7b (23% organic growth) led by Megasari
and acquisitions. EBITDA grew 8%; margin declined 250bp to 16.2% due to
contraction in profitability across the geographies on country specific issues.
Valuation and view:
Despite the margin miss v/s our expectations, we retain
estimates as we expect advertising spends to normalize in FY14E. The stock
trades at 27x FY14E EPS of INR26.3 and 21.8x FY15E EPS of INR32.5. We like
GCPL's sustained share gains in HI category in India, turnaround in its Hair
Colors performance and continued robust performance in Indonesia (45% of
international business). Decline in PFAD prices is a tailwind. Valuations at
lifetime high factor the positives, in our view. Maintain
Neutral
with a target
price of INR800 (25x FY15E EPS).
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P V S
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Godrej Consumer Products
4QFY13 results: Consolidated sales grew 30%; EBITDA up 16% (below our
estimates of 26% growth)
Consolidated sales growth of 30% to INR17.15b (est INR16.39b) was led by 19%
organic sales growth; 18% growth in Indian sub-continent business and 23% organic
growth in international business.
Organic growth was driven by domestic HI business, Toilet Soaps, Hair Colors and
Megasari, which posted a strong 26%, 27%, 17%, 35% and 72% revenue growth
respectively.
Gross margin was up 150bp to 55.1%; however, the 120bp increase in ad spends to
9.5% and 280bp increase in other expenditure to 19.6% dragged EBITDA margin
down by 260bp to 16% (est 19.1%).
EBITDA grew 16% at INR2.75b (est INR3.13b).
Other income increased 41% to INR281m, while the interest cost increased by
19% to INR222m.
Tax rate for the quarter was lower by 540bp to 20.4%. Hence, recurring PAT grew
22.4% to INR2.05b.
Indian subcontinent (~55% of cons sales): Sales up 18%; Soaps volume up
4%; Hair Colors grew impressive 27%; HI up 26%; EBITDA margin declines
115bp
India business
reported sales of INR9.2b, up 18% YoY. Gross margin expanded
340bp to 54.5% on account of correction in palm oil prices. However, EBITDA margin
declined 115bp YoY at 18.3% led by higher ad spends (up 120bp) and other expenses
(up 500bp).
Despite the 19% increase in interest cost and 34% increase in depreciation, growth
in adj PAT was 7.7% to INR1,503m.
Household Insecticides (HI)
maintained strong growth, with sales up 26% YoY (value
growth 2.1x of category growth rate). GCPL launched
HIT Anti Roach Gel
and is
witnessing the initial acceptance, according to management.
Toilet Soaps
sales posted healthy 17% YoY growth, with 4% volume growth (value
growth at 1.3x of category growth). Company benefited from falling PFAD prices
and launched new variants under
Godrej No1 Aloe Vera
and
White Lily.
Hair Color
reported impressive performance, with sales growth at 27%, with value
growth at 2x of the category growth. We note that after underperforming the
Standalone EBITDA margins down
120bp to 18.3%
Decline in PFAD aided 340bp domestic
gross margin expansion
Consolidated EBIDA margins down
260bp to 16%
Source: Company, Bloomberg, MOSL
2 May 2013
2

Godrej Consumer Products
category consistently, Hair Colors turned the corner, post recent premiumization
effort in
Expert.
We will keenly watch the sustenance of this performance as
consistent outperformance of Hair Colors can have beneficial gross and operating
margins impact for GCPL.
Hair colors continue solid performance
FY12
Soaps Revenue Growth (%)
Soaps Vol Growth (%)
Hair Colours Revenue Growth (%)
HI Revenue Growth (%)
1Q
17
9
19
40
2Q
32
19
15
29
3Q
31
20
9
30
4Q
30
17
13
28
FY13
1Q
2Q
3Q
4Q
42
24
20
17
24
6
2
4
5
10
17
27
27
10
27
26
Source: Company, MOSL
Hair colors grow 2x of the category growth
Reported Category growth (%)
GCPL (%)
1QFY13
21
5
2QFY13
23
10
3QFY13
4QFY13
21
13
17
27
Source: Company, MOSL
International business (~45% of cons sales): Organic sales up 23%; Margin
declines 250bp
International sales grew 49% to INR7.7b, driven by 23% organic growth.
EBITDA grew 8%; however, margin declined 250bp to 16.2%, primarily due to margin
decline across geographies.
Megasari
sales (45% of international) grew 35% YoY (constant currency growth of
35%) to INR3.43b and EBITDA margin stood at 19%, a decline of 200bp, impacted
by 55% minimum wage hike.
Africa (23% of international sales, includes Rapidol, Kinky, Tura and Darling Group)
reported sales of INR1.78b and EBITDA margin of 7%, a decline of 1,290bp. GCPL
completed the acquisition of 51% stake in Darling's Kenya operations. The sharp
decline in EBITDA margin is due to closure of business for four weeks on account
of elections in Kenya (impact of 500bp) and discounting of stock in Kinky (impact
of 200bp).
Latin America (18% of international)
sales grew 72% YoY to INR1.4b led by
integration of Chile acquisition and new product launches and relaunch of flagship
brand Illicit in Chile. EBITDA margin declined 430bp due to higher brand
investments and sale promotion activities.
Keyline
sales of INR990m were up 109% (100% growth in constant currency). It
reported 13% EBITDA margin, up 230bp.
2 May 2013
3

Godrej Consumer Products
International Sales and EBITDA break-up
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Net Sales (INR m)
Indian Subcontinent
6,256
International
3,715
Africa
430
Latin America
560
Megasari
1,940
Keyline
670
Middle East
115
EBITDA Margin (%)
Indian Subcontinent
15.3
GCPL (Standalone)
NA
Godrej Home Products
NA
International
12.6
Africa
9.3
Latin America
1.8
Megasari
17.0
Keyline
13.4
Total
14.3
7,760
4,190
650
650
2,300
530
60
17.3
NA
NA
17.2
26.0
7.4
19.4
11.0
17.3
7,790
5,660
1,860
820
2,500
430
50
18.8
NA
NA
21.0
31.0
9.0
20.6
6.0
19.7
7,990
5,240
1,280
820
2,550
480
110
18.9
NA
NA
18.3
19.3
16.3
20.7
10.5
18.7
7,777
6,110
1,440
1,080
2,710
730
150
14.1
NA
NA
14.5
19.0
3.0
18.0
13.0
14.3
8,963
6,991
1,630
1,270
3,160
680
251
9,216
7,697
2,260
1,500
3,240
500
197
9,254
7,770
1,780
1,410
3,430
990
160
18.6
NA
NA
13.3
7.0
9.0
19.0
13.0
16.2
MOSL
16.4
16.9
NA
NA
NA
NA
13.9
16.2
16.0
20.0
4.0
8.0
19.0
20.0
9.0
5.0
15.3
16.6
Source: Company,
Valuation and view
Despite the margin miss v/s our expectations, we retain estimates as we expect
advertising spends to normalize in FY14E. The stock trades at 27x FY14E EPS of INR26.3
and 21.8x FY15E EPS of INR32.5. We note GCPL's sustained share gains in HI category in
India, turnaround in its Hair Colors performance and continued robust performance
in Indonesia (45% of international business). Decline in PFAD prices is a tailwind.
Valuations at lifetime high factor the positives, in our view. Maintain
Neutral
with a
target price of INR800 (25x FY15E EPS).
2 May 2013
4

Godrej Consumer Products
Godrej Consumer Products: an investment 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.
Recent developments
Company acquired the Darling group, a sub-Saharan
Africa-based hair care company during the quarter.
GCPL acquired Cosmetica Nacional, a personal care
player with leading shares in color cosmetics and
hair color in Chile.
Key investment arguments
Market leadership and strong 20%+ growth in the
domestic household insecticides business is the key
growth driver for the company.
GCPL has a low tax base, with 65% of sales coming
from excise free and tax free zones.
Valuation and view
The stock trades at 27x FY14E EPS of INR26.3 and
21.8x FY15E EPS of INR32.5.
Maintain
Neutral
with a target price of INR800 (25x
FY15E EPS).
Sector view
Key investment risks
Increasing contribution of acquisitions will likely
increase margin volatility for GCPL in the future.
Aggressive competition in the soap segments may
lead to pricing pressures, which may negatively
affect margins.
We have a cautious view on the sector on the back of
inflationary pressure, which might impact volumes
and profit margins of companies.
Companies with low competitive pressures and
broad product portfolios will be able to withstand
any slowdown better in a particular segment.
Longer term prospects bright, given rising incomes
and low penetration.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
GCPL
31.9
25.7
7.7
6.5
3.8
3.2
21.7
18.2
Dabur
27.4
22.7
9.7
8.0
3.5
3.0
20.8
17.5
Marico
29.8
23.9
6.0
4.9
2.7
2.2
19.5
15.8
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
26.3
32.5
Consensus
Forecast
25.9
32.0
Variation
(%)
1.7
1.6
FY14
FY15
Target price and recommendation
Current
Price (INR)
836
Target
Price (INR)
800
Upside
(%)
-4.3
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
2 May 2013
63.5
1.2
28.2
7.1
Dec-12
63.5
1.4
27.6
7.6
Mar-12
64.0
1.8
25.3
9.0
5

Godrej Consumer Products
Financials and Valuation
2 May 2013
6

Godrej Consumer Products
N O T E S
2 May 2013
7

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