BSE SENSEX
25,120
S&P CNX
7,707
Godrej Consumer
CMP: INR1,336
TP: INR1,325(-1%)
Project Leapfrog II articulated
Neutral
Accelerating core growth
We recently attended Godrej Consumer’s Analyst Meet. The following are
the key takeaways:
4 May 2016
Update
| Sector:
Consumer
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
12M Avg Val (INR M)
Free float (%)
GCPL IN
340.5
1457 / 1024
-3/12/35
454.9
6.9
312
36.7
Financials Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
89.6 110.0 126.2
EBITDA
16.1
20.8
23.4
PAT
11.4
14.0
16.1
EPS (INR)
33.6
41.1
47.3
Gr. (%)
26.1
22.3
15.1
BV/Sh (INR)
150.4 179.8 215.4
RoE (%)
23.9
24.9
23.9
RoCE (%)
19.5
21.3
20.6
P/E (x)
39.7
32.5
28.2
P/BV (x)
8.9
7.4
6.2
Shareholding pattern (%)
As On
Dec-15 Sep-15 Dec-14
Promoter
63.3
63.3
63.3
DII
1.8
1.7
1.9
FII
28.7
28.7
29.0
Others
6.3
6.3
5.9
FII Includes depository receipts
Stock Performance (1-year)
Godrej Consumer
Sensex - Rebased
1,600
1,400
1,200
1,000
800
Overall business:
In FY16, GCPL’s international business contributed 47% of its
consolidated sales. The company caters to 2b people across its targeted
geographies. Out of GCPL’s consolidated sales, Household Insecticides
comprised 33%, Hair Care 27%, Personal Wash 18% and Others 22%. The Top 8
brands made up 75% of total sales and included Good Knight, Hit India, Hit
Indonesia, Godrej No. 1, Godrej Expert, Cinthol, Stella and Darling. In 90% of
their global categories, these brands are ranked either first or second in terms
of market share. In the air freshener category, the company is No. 1 in
Indonesia and No. 2 in India. GCPL expects to become No. 1 in India in the
category over the next 2-3 years if the current momentum sustains. The
management reckons that their personal care approach to the Air Freshener
segment is helping it develop better products in comparison to global MNCs
focusing on the traditional Home Care segment. Project Pi led to savings of
INR750m in FY16 as a result of (a) Strategic sourcing all clusters, (b) Packaging
modifications, (c) Manufacturing efficiencies and (d) Optimization of ATL and
BTL marketing expenses.
Overall business strategy ahead:
The management announced the start of
Project Leapfrog II which will involve: (a) Thinking boldly about future targets
of being among the Top 3 players in HPC in India and Indonesia, becoming the
No 1 HPC player in Sub-Saharan Africa and the leading hair color company in
LatAm (ex-Brazil,) (b) Accelerating core growth mainly by driving reach and
penetration, (c) Placing a few bets to plant seeds for the future, including Air
Care, Hair Styling and Wellness in India, Baby Care and Hair Care in Indonesia,
and Hair Care and Household Insecticides in Africa, (d) Drive profitability to
fund growth plans, (e) Invest in developing talent and capabilities.
Going forward, the management has guided for a larger proportion of overseas
business as compared to India sales. The company is well-placed to grow
sharply in HPC on the S Curve in a number of emerging markets. For FY17,
Africa, Godrej Protekt and BBlunt will be the key focus areas. BBlunt
advertising, which will commence in this year, will be entirely digital.
India business and strategy:
GCPL reaches 4.5m outlets in India with a direct
reach of over 1m outlets. In terms of rural markets, it reaches over 60,000
villages. The rural markets will be a key growth area, going forward, with the
company targeting an increase in the contribution of rural sales to total sales at
40% from the current 28% over the next 6-7 years. GCPL’s ambitious rural
growth drive will focus on three main brands, viz. Good Knight, Godrej Expert
and Godrej No. 1. It is adopting various strategies, such as split distribution and
roll out of handheld devices to sales representatives of rural distributors, which
has already been implemented among 1200 rural sub-stockists. The key trends
in India that will drive GCPL’s strategy ahead are: (a) Accelerating
premiumization, (b) Rise of small-town India, (c) Duality of rural growth, both
premium-led and penetration-led, and (d) Take off of online and mobile.
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
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.