godrej consumer products -...

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Godrej Consumer Products’ (GCPL) 12.1% YoY revenue growth came in line with our estimate, while EBITDA & adjusted PAT (up 20.8% YoY and 25.3% YoY, respectively) surpassed it. In our under coverage consumer pack, GCPL is the only company in Q4FY17 to report double digit sales spurt helped by successful innovations and strong recovery in hair colour—while India business sales jumped 10% YoY with 5% YoY volume growth, international sales grew 16% YoY. Consolidated EBITDA margin jumped 165bps YoY; standalone business EBITDA margin expanded 232bps YoY without resorting to cut in ad spends (unlike peers). GCPL has declared bonus issue in the 1:1 ratio. Maintain ‘BUY’ on dips.

Strong show on most parameters Key positives: (i) robust 13% YoY sales spurt in hair care post 2 quarters of negative or

nil growth (2% YoY dip in Q3FY17); (ii) 9% YoY growth in personal wash led by mid

single digit volumes, post 2 consecutive quarters of sales dip; (iii) 23% YoY sales surge

in other brands (air fresheners, Cinthol deos, liquid detergents etc); (iv) 313bps YoY and

267bps YoY jump in standalone and consolidated gross margins; and (v) 61% YoY CCG

in Africa and 19% YoY CCG in LATAM; Key negatives: (i) 4% YoY growth in household

insecticide (HI) impacted by erratic weather in March, especially in North India; and

(ii) flat CCG in Indonesia impacted by soft HI (excluding HI, CCG stood at 9% YoY).

Q4FY17 conference call highlights Domestic business is expected to clock high single digit volume growth. Has seen

some impact of Patanjali in soaps in a couple of states in North, but it is not material—

Godrej No.1 is recovering. GCPL expects double digit growth to sustain in hair colour as

it will continue competitive investment in brand building and focus on volume share.

Gross indirect tax paid by the company is in the 22‐23% range; will pass on most of

the benefit to consumers to boost demand.

Outlook and valuations: Positive; maintain ‘BUY’

We like GCPL’s sharp focus on innovation and cost efficiency. Africa business growth is

encouraging and is likely to be enhanced by entry in HI and wet hair care through SON,

which is likely to be EPS accretive. At CMP, the stock is trading at 34.6x FY19E EPS. We

recommend ‘BUY’ on dips and rate it ‘SO’ with target price of INR2,008.

RESULT UPDATE

GODREJ CONSUMER PRODUCTSHair care adds bright hue; margin sustains robust run

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Outperform

Risk Rating Relative to Sector High

Sector Relative to Market Underweight

MARKET DATA (R: GOCP.BO, B: GCPL IN)

CMP : INR 1,929

Target Price : INR 2,008

52‐week range (INR) : 1,958 / 1,272

Share in issue (mn) : 340.6

M cap (INR bn/USD mn) : 657 / 10,168

Avg. Daily Vol.BSE/NSE(‘000) : 224.5 SHARE HOLDING PATTERN (%)

Current Q2FY17 Q1FY17

Promoters *

63.3 63.3 63.3

MF's, FI's & BK’s 2.2 2.1 1.7

FII's 28.4 28.4 29.0

Others 6.1 6.2 6.1

* Promoters pledged shares (% of share in issue)

: Nil

PRICE PERFORMANCE (%)

Stock Nifty

EW Consumer goods Index

1 month 13.5 1.3 1.8

3 months 23.3 6.1 4.2

12 months 43.1 18.4 21.3

Abneesh Roy +91 22 6620 3141

[email protected]

Tanmay Sharma, CFA +91 22 4040 7586

[email protected]

Alok Shah +91 22 6620 3040

[email protected]

India Equity Research| Consumer Goods

May 9, 2017

Financials (INR mn)

Year to March Q4FY17 Q4FY16 % Change Q3FY17 % Change FY16 FY17E FY18E

Net rev. 23,898 21,313 12.1 24,022 (0.5) 84,239 92,679 104,015

EBITDA 5,507 4,559 20.8 5,168 6.6 16,533 18,977 22,155

Adjusted profit 3,871 3,088 25.3 3,613 7.1 11,611 13,040 15,599

Dil. EPS (INR) 11.4 9.1 10.6 34.1 38.3 45.8

Diluted P/E (x) 56.6 50.4 42.1

EV/EBITDA (x) 41.0 35.7 30.3

ROAE (%) 24.1 23.6 24.7

Consumer Goods

2 Edelweiss Securities Limited

Table 1: Trend across segments at a glance (International growth is in reported terms not in Constant currency terms)

Source: Company, Edelweiss research

Q4FY17 conference call | Key takeaways

Outlook: GCPL expects high single digit volume growth in domestic business. Will protect

margin at current level in FY18. HI and hair colour businesses to continue to do well. Expects

single digit growth in the soap segment in FY18. Competition from Patanjali will not impact

the company’s sales growth. Hopeful of stronger performance in LATAM, Indonesia and

Europe.

GST: Anticipates some temporary disruptions. However, GCPL is confident that consumer

demand will not dip. GST will create level playing field for organised players. H2FY18 should

see good growth once GST is rolled out.

India business: Net sales jumped 10% YoY—healthy volume and price & mix led growth.

Branded volume growth stood at 5% YoY.

HI: HI business grew 4% YoY. Overall HI category sales impacted by erratic weather in March,

especially in North India. GCPL is gaining share across most formats—launched HIT GelStick (an

affordable roach solution priced at INR30). GCPL will offer more price points in HI segment and

hence does not see competitive intensity disrupting sales growth. Continues to increase

penetration rates and make competitive brand investments. Continues to gain market share

across most formats. Good knight personal repellents receiving encouraging response. The

company is working hard to drive premiumisation. The aims is to increase market size by

deeper penetration. Directionally, GCPL has gained market share of ~30‐50bps.

Soap: Soap business jumped 9% YoY with mid single digit volume growth. Cinthol continues

to outperform the category and gain market share. GCPL has pulled back consumer offers

and initiated selective price hikes. Godrej Cinthol did very well and Godrej No. 1 is recovering.

Though Godrej No. 1 sales were impacted by Patanjali in North, the impact is not material

enough to disturb the former’s business. GCPL will continue to launch new products in this

segment.

Hair colour: Double‐digit volume led sales growth of 13%. Godrej Expert Rich Crème

continues to gain market share and reached highest ever market share on exit basis.

Directionally, the company has gained market share of ~50‐100bps. Growth was not solely

led by channel filing.

Q4FY17 Q3FY17 Q2FY17 Q1FY17 Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15

Net sales ‐ domestic 9.6 ‐ 7.5 ‐ 7.0 8.1 9.0 12.0 9.8 11.7 6.5

‐ Personal wash 9.0 (6.0) (10.0) 1.0 (6.0) 2.0 3.0 13.0 15.0 11.0 13.0

‐ Hair care 13.0 (2.0) ‐ 4.0 7.0 (1.1) 17.0 12.0 12.0 10.0 9.0

‐ Home care 4.0 (2.0) 18.0 (11.0) 10.0 14.9 13.0 15.0 11.0 16.0 2.0

‐ Others 23.2 20.0 34.5 37.4 28.0 5.5 16.0 14.0 (21.0) 1.3 5.2

Net sales ‐ consol 8.1 9.2 11.4 6.8 8.8 5.4 9.0 9.8 8.2 11.7 5.0

International 18.6 19.0 16.0 14.0 12.0 3.2 11.0 7.5 6.3 11.9 2.6

Indonesia (Megasari) 1.0 7.0 6.0 8.0 16.0 (2.8) (2.2) 1.1 (1.2) 13.7 1.4

Africa (Tura, Rapidol, Kinky, DGH) 47.0 41.0 60.0 46.0 20.0 6.6 23.0 25.6 14.6 30.2 9.6

Latin America (Issue Group, Argenco 17.0 (4.0) (12.0) (16.0) (6.0) 16.0 18.0 23.8 15.9 0.6 (4.5)

UK (Keyline) (18.0) (5.0) (15.0) (5.0) 18.0 14.3 12.0 (5.5) (1.7) (18.0) (3.6)

Advertisement as % of sales 6.5 8.0 8.6 7.9 9.5 7.8 11.3 12.0 11.0 9.7 10.3

Godrej Consumer


Other brands: Clocked robust growth of 33% YoY. Aer pockets have been doing well with

double digit volume growth. The company is confident of driving strong growth in car and

room freshner category.

International business: Posted overall sales spurt of 16% YoY with 22% YoY constant

currency sales growth. Organic constant currency sales growth stood at 6% YoY with 1%

overall net sales growth. Overall international business margins jumped 150bps YoY.

Margins across geographies rose significantly—up 60bps YoY in Indonesia, 40bps YoY in

Africa, 670bps YoY in LatAM and 590bps YoY in Europe.

Indonesia: Clocked overall growth of 1% YoY, while CCG was flat. CCG, excluding HI, was 9%

YoY. Margin improvement was led by better product mix and cost control initiatives. Gained

share in HI and air fresheners on MAT basis. Has cross pollinated aer pockets to Indonesia.

NYU range of hair colours continued to receive encouraging response from trade and

consumers.

Fundamentals of HI segment remain strong and Q1FY18 should see strong growth in that

segment. Competitive intensity is waning in HI segment in Indonesia and expects marginal

recovery. Project PIE was launched, which will help sustain margin going forward.

Indonesia has seen flattish volume growth; volume and value equation is also largely flattish

for full year.

Africa: Africa business posted overall growth of 47% YoY with CCG of 61% YoY. Margin

increase was helped by calibrated price increases and mix. Focus on leveraging acquisition

of Strength of Nature to turbo charge building wet hair care platform in Africa. Relaunch of

Darling brand on the cards.

3 categories in Africa: Dry hair, wet hair and insecticides. Dry hair and wet hair segments

are USD1bn each; insecticides is about USD500mn. The company is planning to localise

manufacturing. This will help in better margin and help playing with product size, SKU size,

etc. In the dry hair business, full manufacturing is local; for wet hair, most manufacturing

will become local by Q2FY18.

LATAM: Overall growth and CCG stood at 17% YoY and 19% YoY, respectively. Sharp margin

expansion (670bps YoY) was due to expansion in gross margin and cost saving initiatives.

Many initiatives in Chile and Argentina to improve margins have worked well.

Europe: While sales declined 18% YoY, constant currency sales fell 5% YoY. Growth

impacted due to counterfeit stock related issues in Bio‐Oil and increased competitive

intensity in deodorants. Margin expansion (590bps YoY) was due to judicious marketing

investments and one‐time reversal of A&P provisions.

Raw material prices: Adequate stock of palm oil in place coupled with future covers too.

Going forward, the company expects palm oil prices to correct.

Innovations and new product launches: Lot of potential is driving deo stick. Early days, but

hand wash segment should also be sizable.

Consumer Goods


Margins: Aim is to grow EBITDA at a pace faster than sales growth, thereby margin

expansion continues. With cost rationalisation, marketing cost management and product

innovations, the company believes there is still scope for margin expansion.

Debt and working capital: Reduction in receivables has been broad based and overall

working capital in organic business has dipped significantly.

Ad spends: The company did not cut A&P spends in Q4FY17. Ad spends will continue to

grow at 10% YoY. 2/3rd of A&P spends go into the core and balance into adjacencies and

new segments.

Dividend: Payout ratios have been fairly low compared to peers. GCPL now wants to reward

shareholders with better payout. Management believes it will be able to continue to sustain

higher payout ratio with free cash flows generated. It is not looking at big value acquisition.

Indirect tax rate: Current indirect tax at gross is 22%. However, with exemptions enjoyed

effective indirect tax rate is 16‐17%. If GST rate is 18%, this rate will still be at gross level and

the effective tax rate will be lower. Any benefit on GST will help GCPL drive demand by

passing on the benefit to customers.

Outlook and valuations: Positive; maintain ‘BUY’

GCPL continues to surpass category growth along with garnering market share across

segments and is one of the few companies to report double digit sales growth in the

domestic business. The company’s strategy of launching new and innovative products at

disruptive price points (recently entered outdoor HI, launched B Blunt Crème hair colour at

attractive price points) is bolstering growth, despite tough macro‐economic conditions.

Domestic margins are expected to benefit from supply chain efficiencies emanating from

Project PIE. The company also holds lower cost inventory, which amidst price hikes will help

sustain margin in the short term. International business has started improving led by cost

saving initiatives (Project Iceberg in Argentina, which has now been extended to Indonesia;

Project Symphony in Chile, etc) and share gains—all geographies clocked margin expansion

in Q4FY17. Entry in HI in Africa will be a key growth driver in Africa business, while

localisation of manufacturing will bolster supply chain system. SON acquisition has aid entry

in wet hair care and margins as well. Distribution measures, new launches (crème hair

colour in Indonesia) and cost saving measures in Indonesia will help drive growth and

sustain margin. Also, the company’s drive to improve distribution productivity and reach by

deploying more feet on ground and other steps will lend impetus to profitability.

We also like GCPL’s aggression in developing categories via new launches (Godrej Expert

Rich Crème in a multi‐application pack, Aer pocket, Godrej No1 Nature Soft –Glycerin &

Honey, Germ Protection, Cinthol Dio Stick, Cinthol Confidence+, etc) and cross pollination of

products across geographies. GCPL is expected to sustain strong double digit growth led by

entry in lower penetrated category, new product launches, pricing growth in the personal

wash category and sustain double digit growth in the hair colour segment. GCPL has

declared a dividend of INR15 per share in FY17 which is close to 40% payout, a sharp jump

from ~24% payout in FY16. The payout is expected to remain strong as GCPL is not

planning any big value expansion. We assign 36x on FY19E EPS to with target price of

INR2,008. We recommend 'BUY’ on dips and rate the stock 'Sector Outperformer' on

relative returns basis.

Godrej Consumer


Chart 1: Sales growth in HI – Domestic business

Chart 2: Sales growth in hair care – Domestic business

Chart 3: Sales growth in soaps – Domestic business


(15.0)

(3.0)

9.0

21.0

33.0

45.0

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

(%)

HI

(5.0)

5.0

15.0

25.0

35.0

45.0

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

(%)

Hair care

(25.0)

(10.0)

5.0

20.0

35.0

50.0

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

(%)

Personal wash

Consumer Goods


Table 2: Financial Snapshot‐ Standalone (INR mn)

Table 3: International business snapshot (INR mn)


Year to March Q4FY17 Q4FY16 % Change Q3FY17 % change

Net sales 12,261 11,341 8.1 11,798 3.9

Other operating income 288 178 62.0 161 79.0

Net operating income 12,549 11,518 9.0 11,959 4.9

COGS 5,277 5,204 1.4 4,972 6.1

Staff costs 754 665 13.3 732 3.0

Advt and publicity 1,134 1,037 9.3 1,360 (16.6)

Other expenditure 1,960 1,736 12.9 1,816 7.9

Total expenditure 9,125 8,642 5.6 8,880 2.8

EBITDA 3,424 2,876 19.1 3,079 11.2

Interest 121 73 65.3 92 31.7

Depreciation 147 129 14.1 144 2.4

Other income 195 99 97.6 166 17.6

Forex gain/(loss) (10) (4) NM (5) NM

PBT 3,342 2,769 20.7 3,004 11.2

Tax 811 674 20.3 690 17.5

PAT before exceptionals 2,531 2,095 20.8 2,314 9.4

Extra ordinary items (net of tax) ‐ ‐ NM ‐ NM

Reported profit 2,531 2,095 20.8 2,314 9.4

Equity capital (FV INR 1) 341 341 0.0 341 ‐

No. of shares (mn) 341 341 0.0 341 ‐

EPS (INR) 7.43 6.15 20.8 6.79 9.4

As % of sales

Gross margin 58.0 54.8 313 58.4 (48)

Staff costs 6.0 5.8 23 6.1 (11)

Advt and publicity 9.0 9.0 3 11.4 (233)

Other expenditure 15.6 15.1 55 15.2 43

EBITDA margin 27.3 25.0 232 25.7 154

Tax rate 24.3 24.3 (8) 23.0 129

PAT 20.2 18.2 198 19.3 82

International revenue Q4FY17 Q3FY17 Q2FY17 Q1FY17 Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 Q3FY15

Indonesia (Megasari) 3890 3950 3670 3762 3940 3,790 3,460 3,530 3,400 3,900

UK (Keyline) 970 1150 1040 1280 1330 1,040 1,230 1,550 1,130 910

Africa (Tura, Rapidol, Kinky, Darling) 4820 5490 5150 4440 3380 4,040 3,210 3,140 2,820 3,790

Latin America (Issue Group, Argencos) 1660 1610 1310 1110 1640 1,960 1,490 1,560 1,750 1,690

International EBITDA Q4FY17 Q3FY17 Q2FY17 Q1FY17 Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 Q3FY15

Indonesia (Megasari) 934 909 807 903 827 910 830 741 646 741

UK (Keyline) 146 115 125 166 106 83 135 140 90 73

Africa (Tura, Rapidol, Kinky, Darling) 819 988 876 755 507 727 482 408 338 682

Latin America (Issue Group, Argencos) 481 306 183 89 312 392 164 140 368 220

EBITDA margins Q4FY17 Q3FY17 Q2FY17 Q1FY17 Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 Q3FY15

Indonesia (Megasari) 24.0 23.0 22.0 24.0 21.0 24.0 24.0 21.0 19.0 19.0

UK (Keyline) 15.0 10.0 12.0 13.0 8.0 8.0 11.0 9.0 8.0 8.4

Africa (Tura, Rapidol, Kinky, Darling) 17.0 18.0 17.0 17.0 15.0 18.0 15.0 13.0 12.0 19.0

Latin America (Issue Group, Argencos) 29.0 19.0 14.0 8.0 19.0 20.0 11.0 9.0 21.0 13.0

Godrej Consumer


Table 4: Constant currency YoY sales growth


Chart 4: One year forward PE

Source: Edelweiss research


Q4FY17 Q3FY17 Q2FY17 Q1FY17 Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15 Q1FY15

Reported net sales ‐ consol 16.0 8.0 7.0 6.8 8.8 5.4 9.0 11.0 8.0 12.0 5.0 10.0

International 22.0 28.0 25.0 18.0 18.0 9.0 18.0 13.0 14.0 13.0 12.0 17.0

Indonesia (Megasari) 0.5 13.0 (2.0) 3.0 13.0 3.0 8.0 8.0 6.0 19.0 15.0 21.0

Africa (Tura, Rapidol, Kinky, SON, DGH) 61.0 54.0 75.0 52.0 26.0 16.0 32.0 32.0 23.0 36.0 15.0 12.0

Latin America (Issue Group, Argencos) 19.0 24.0 20.0 10.0 31.0 28.0 29.0 29.0 27.0 25.0 31.0 26.0

UK (Keyline) (5.0) 16.0 (2.0) (3.0) 15.0 10.0 (2.0) (2.0) 7.0 (13.0) (9.0) 21.0

0

360

720

1,080

1,440

1,800

Apr‐11

Oct‐11

Apr‐12

Oct‐12

Apr‐13

Oct‐13

Apr‐14

Oct‐14

Apr‐15

Oct‐15

Apr‐16

Oct‐16

Apr‐17

(INR)

25x

30x

35x

20x

15x

25x

30x

35x

20x

15x

Consumer Goods


Financial snapshot (INR mn) Year to March Q4FY17 Q4FY16 % change Q3FY17 % change FY16 FY17E FY18E

Net revenues 23,898 21,313 12.1 24,022 (0.5) 84,239 92,679 104,015 Cost of goods sold 10,337 9,788 5.6 10,573 (2.2) 38,672 41,325 45,559

Staff costs 2,471 2,294 7.7 2,555 (3.3) 9,441 9,885 11,130

Advt. sales & promotions 1,551 1,543 0.5 1,919 (19.2) 6,694 7,181 8,217

Other expenses 4,031 3,129 28.8 3,805 5.9 12,898 15,311 16,954

Total expenditure 18,391 16,754 9.8 18,853 (2.5) 67,706 73,702 81,860

EBITDA 5,507 4,559 20.8 5,168 6.6 16,533 18,977 22,155

Depreciation 369 284 29.8 363 1.8 1,006 1,416 1,511

EBIT 5,138 4,275 20.2 4,806 6.9 15,527 17,562 20,645

Other income 257 105 144.8 189 36.1 664 753 803

Interest 379 252 50.5 397 (4.5) 1,190 1,452 1,319

Add: Prior period items

Add: Exceptional items 29 (1,840) (101.6) (95) (130.0) (3,335) ‐ ‐

Profit before tax 5,016 4,128 21.5 4,598 9.1 15,001 16,862 20,128

Provision for taxes 1,145 1,023 11.9 986 16.2 3,361 3,792 4,529

Minority interest ‐ 16 (98.1) (1) (121.4) ‐ ‐ ‐

Associate profit share (29) (31)

Profit‐ Discontinued Ops

Reported net profit 3,899 1,248 212.3 3,518 10.8 8,276 13,040 15,599

Adjusted Profit 3,871 3,088 25.3 3,613 7.1 11,611 13,040 15,599

Diluted shares (mn) 341 341 341 340 341 341

Adjusted Diluted EPS 11.4 9.1 25.3 10.6 7.1 34.1 38.3 45.8

Diluted P/E (x) ‐ ‐ ‐ 56.6 50.4 42.1

EV/EBITDA (x) ‐ ‐ ‐ 41.0 35.7 30.3

ROAE (%) ‐ ‐ ‐ 24.1 23.6 24.7

As % of net revenues

COGS 43.3 45.9 44.0 45.9 44.6 43.8

Employee cost 10.3 10.8 10.6 11.2 10.7 10.7

Adv. & sales promotions 6.5 7.2 8.0 7.9 7.7 7.9

Other expenditure 16.9 14.7 15.8 15.3 16.5 16.3

EBITDA 23.0 21.4 21.5 19.6 20.5 21.3

Adjusted net profit 16.2 14.5 15.0 13.8 14.1 15.0

Tax rate 22.8 24.8 21.4 22.4 22.5 22.5

Godrej Consumer


Company Description

GCPL is a major player in the toilet soap, household insecticide and hair colour categories in

the Indian FMCG market. It is a leader in the hair colour category and has a vast product

range across various price points. Major brands include Godrej Expert Rich Hair Crème,

Godrej Hair Dye (liquid and powder), Godrej Kesh Kala oil and Nupur hair dyes in the mass

end and Renew and Coloursoft in the mass premium segment. It is the second‐largest toilet

soap marketer after Hindustan Unilever (HUL) and primary brands such as Godrej No. 1,

Cinthol and FairGlow.

In 2012, GCPL completed the acquisition of 51% stake in Godrej Sara Lee Limited which had

several leading brands such as GoodKnight, JET, HIT, Brylcreem and KIWI. GCPL is the leader

in the household insecticides category across all the formats.

To expand its geographical presence, GCPL had made few acquisitions in the past few years.

In FY06, it acquired Keyline brands in the UK with brands such as Cuticura and Erasmic. In

FY07, it took over Rapidol, a South African company with presence across ten countries in

Africa. It acquired Kinky, one of the leaders in the South African hair business for South

African Rand. Tura and Megasari are purchases that helped extend its presence in Africa and

Indonesia respectively. With acquisition of Darling Group Holding, leader in hair extension in

Africa, in Africa GCPL further strengthened its stronghold in the continent. It also entered

Chile, with acquisition of 60% stake in Cosmetica Nacional. GCPL acquired 30% stake in

B:Blunt salon services. The company strengthened its presence in the wet hair care market

with the acquisition of Strength of Nature. Investment Theme

GCPL boasts of patented technology for PHDs that has helped it drive usage of hair colours

at the lower end of the market. Recently with disruptive launch of crème based hair color at

low price point GCPL has raised competitive intensity in the segment and gained market

share form MNCs. In soaps, the company provides high‐quality value‐for‐money soaps with

its Godrej No1 which has helped it garner larger market share and plays the premiumisation

strategy with its Cinthol range. GCPL is the undisputed leader in the household insecticides

space across three categories and continues to expand the market with innovations. GCPL’s

international acquisitions are driving benefits from cross pollination of products and

technology. The company can be expected to benefit from its new ventures, increasing

consumer spending and inorganic growth going forward.

Key Risks

A slowdown in rural demand due to lower government spending or a monsoon failure could

impact GCPL’s revenues significantly.

Depreciating INR, Indonesian rupiah and Argentine Peso can impact profitability.

GCPL’s ability to gain market share in its soap segment could be adversely affected by the

aggression of HUL, ITC, Wipro, etc.


Consumer Goods

Financial Statements

Income statement (INR mn)

Year to March FY16 FY17 FY18E FY19E

Net revenue 84,239 92,679 104,015 119,919

Materials costs 38,672 41,325 45,559 52,165

Employee costs 9,441 9,885 11,130 12,711

Other Expenses 12,898 15,311 16,954 19,307

Ad. & sales costs 6,694 7,181 8,217 9,354

EBITDA 16,533 18,977 22,155 26,382

Depreciation 1,006 1,416 1,511 1,543

EBIT 15,527 17,562 20,645 24,839

Add: Other income 664.00 753.00 803.01 885.84

Less: Interest Expense 1,190 1,452 1,319 1,214

Profit Before Tax 15,001 16,862 20,128 24,511

Less: Provision for Tax 3,361 3,792 4,529 5,515

Associate profit share (29) (31) ‐ ‐

Reported Profit 8,276 13,040 15,599 18,996

Exceptional Items (3,335) ‐ ‐ ‐

Adjusted Profit 11,611 13,040 15,599 18,996

Shares o /s (mn) 341 341 341 341

Adjusted Basic EPS 34.1 38.3 45.8 55.8

Diluted shares o/s (mn) 340 341 341 341

Adjusted Diluted EPS 34.1 38.3 45.8 55.8

Adjusted Cash EPS 37.1 42.5 50.2 60.3

Dividend per share (DPS) 5.8 15.3 16.0 19.5

Dividend Payout Ratio(%) 28.5 48.1 42.1 42.1

Common size metrics


Materials costs 45.9 44.6 43.8 43.5

Ad. & sales costs 7.9 7.7 7.9 7.8

EBITDA margins 19.6 20.5 21.3 22.0

Net Profit margins 13.8 14.1 15.0 15.8

Growth ratios (%)


Revenues 8.4 10.0 12.2 15.3

EBITDA 19.0 14.8 16.7 19.1

Adjusted Profit 19.6 12.3 19.6 21.8

EPS 23.7 12.3 19.6 21.8

Key Assumptions


Macro

GDP(Y‐o‐Y %) 7.2 6.5 7.1 7.7

Inflation (Avg) 4.9 4.8 5.0 5.2

Repo rate (exit rate) 6.8 6.3 6.3 6.3

USD/INR (Avg) 65.0 67.5 67.0 67.0

Company

Revenue growth (Y‐o‐Y %)

Personal wash gr (dom) 3.2 (1.9) 10.3 12.3

Hair color growth (dom) 8.8 4.0 11.3 13.4

Home care growth (dom) 13.4 3.1 12.4 14.5

International bus growth 8.7 17.5 16.2 16.7

Asia sales growth 10.0 4.0 12.0 15.0

Africa sales growth 21.1 38.9 22.5 21.6

Europe sales growth 10.5 (5.0) 10.0 10.0

LatAm sales growth (15.7) (9.6) 15.0 15.0

EBITDA margin assumpn

COGS as % of sales (Con) 45.9 44.6 43.8 43.5

Oil & Fat as % of COGS 12.2 21.0 21.0 21.0

Chemicals as % of COGS 12.3 11.5 11.5 11.5

Pack Mat (as % of COGS) 13.7 12.0 12.0 12.0

Staff cost (% of sales) 11.2 10.7 10.7 10.6

Con A&P (% of sales) 7.9 7.7 7.9 7.8

Financial assumptions

Tax rate (Consol) 21.1 22.5 22.5 22.5

Capex (INR mn) 3,492 10,263 2,300 2,500

Debtor days 39 40 40 40

Inventory days 113 124 120 117

Payable days 101 110 110 110

Cash conversion cycle 51 54 50 47

Int rate on debt (%) 3.6 4.7 4.2 4.2

Dep. (% gross block) 4.1 4.7 4.3 4.1

Dividend payout 17.5 40.0 35.0 35.0

Yield on cash 6.1 5.0 6.0 5.0


Godrej Consumer

Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%)

Name (USD mn) FY18E FY19E FY18E FY19E FY18E FY19E

Godrej Consumer 10,168 42.1 34.6 30.3 25.1 24.7 26.0

Dabur 7,454 33.2 28.4 28.5 23.9 27.5 27.7

Emami 3,786 50.1 37.9 26.7 22.0 28.5 32.1

Hindustan Unilever 31,882 42.5 36.7 29.3 25.1 103.3 107.2

ITC 51,029 26.4 22.8 17.2 14.5 31.1 31.2

Marico 6,042 41.1 36.0 27.7 24.1 38.1 37.1

Median ‐ 41.6 35.3 28.1 24.0 29.8 31.6

AVERAGE ‐ 39.3 32.7 26.6 22.5 42.2 43.5


Cash flow metrics


Operating cash flow 8,391 18,075 17,524 20,258

Investing cash flow (4,946) (10,263) (2,300) (2,500)

Financing cash flow (1,875) (3,761) (10,890) (11,216)

Net cash Flow 1,570 4,051 4,333 6,542

Capex (3,492) (10,263) (2,300) (2,500)

Dividend paid (2,357) (6,278) (6,571) (8,002)

Profitability and efficiency ratios


ROAE (%) 24.1 23.6 24.7 26.0

ROACE (%) 21.2 21.3 22.7 25.2

Inventory Days 113 124 120 117

Debtors Days 39 40 40 40

Payable Days 101 110 110 110

Cash Conversion Cycle 51 54 50 47

Current Ratio 1.8 1.8 2.0 2.2

Debt/EBITDA (x) 1.7 1.7 1.4 1.1

Debt/Equity (x) 0.6 0.6 0.4 0.4

Adjusted Debt/Equity 0.6 0.6 0.4 0.4

Net Debt/Equity 0.4 0.3 0.2 0.1

Interest Coverage Ratio 13.0 12.1 15.6 20.5

Operating ratios


Total Asset Turnover 1.1 1.1 1.1 1.2

Fixed Asset Turnover 1.4 1.4 1.5 1.7

Equity Turnover 1.7 1.7 1.6 1.6

Valuation parameters


Adj. Diluted EPS (INR) 34.1 38.3 45.8 55.8

Y‐o‐Y growth (%) 25.6 12.3 19.6 21.8

Adjusted Cash EPS (INR) 37.1 42.5 50.2 60.3

Diluted P/E (x) 56.6 50.4 42.1 34.6

P/B (x) 12.9 11.4 9.8 8.4

EV / Sales (x) 8.0 7.3 6.4 5.5

EV / EBITDA (x) 41.0 35.7 30.3 25.1

Dividend Yield (%) 0.3 0.8 0.8 1.0

Balance sheet (INR mn)

As on 31st March FY16 FY17 FY18E FY19E

Share capital 341 341 341 341

Reserves & Surplus 50,636 57,399 66,427 77,421

Shareholders' funds 50,977 57,739 66,767 77,761

Minority Interest 842 842 842 842

Short term borrowings 4,421 8,421 5,421 3,421

Long term borrowings 24,490 24,490 24,490 24,490

Total Borrowings 28,911 32,911 29,911 27,911

Long Term Liabilities 348 348 348 348

Def. Tax Liability (net) (413) (413) (413) (413)

Sources of funds 80,665 91,427 97,455 106,449

Gross Block 26,383 33,883 36,383 38,883

Net Block 8,471 4,555 5,544 6,502

Capital work in progress 437 3,200 3,000 3,000

Intangible Assets 54,633 64,633 64,633 64,633

Total Fixed Assets 63,540 72,388 73,177 74,134

Non current investments 344 344 344 344

Cash and Equivalents 8,988 13,039 17,373 23,914

Inventories 13,070 14,039 14,978 16,721

Sundry Debtors 11,180 10,157 11,399 13,142

Loans & Advances 3,857 3,857 3,857 3,857

Other Current Assets 118 118 118 118

Current Assets (ex cash) 28,225 28,171 30,352 33,839

Trade payable 10,372 12,454 13,730 15,721

Other Current Liab 10,061 10,061 10,061 10,061

Total Current Liab 20,433 22,515 23,791 25,782

Net Curr Assets‐ex cash 7,792 5,656 6,561 8,056

Uses of funds 80,665 91,427 97,455 106,449

BVPS (INR) 149.7 169.6 196.1 228.4

Free cash flow (INR mn)


Reported Profit 8,276 13,040 15,599 18,996

Add: Depreciation 1,006 1,416 1,511 1,543

Interest (Net of Tax) 923 1,126 1,022 941

Others 3,507 357 297 273

Less: Changes in WC 5,997 (2,137) 905 1,495

Operating cash flow 7,716 18,075 17,524 20,258

Less: Capex 3,492 10,263 2,300 2,500

Free Cash Flow 4,224 7,812 15,224 17,758


Consumer Goods

Holding – Top10

Perc. Holding Perc. Holding

Commonwealth Bank Of Austr 3.9 Temasek Holdings Private Ltd 2.5

Aberdeen Asset Managers Lt 2.4 Arisaig Partners Asia Pte Ltd 2.0

Vanguard Group 1.2 Life Insurance Corp Of India 1.1

Blackrock Fund Advisors 1.1 Fidelity Management & Research 0.5

Invesco 0.4 Blackstone Asia Advisors Llc 0.4

*as per last available data

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

03 Apr 2017 Godrej & Boyce Mfg Co. Limited Sell 93500000.00

03 Apr 2017 Godrej Seeds & Genetics Limited Buy 93500000.00

23 Dec 2016 RKN Enterprises Buy 4479500.00

23 Dec 2016 Rishad K Naoroji Sell 4479500.00

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Additional Data

Directors Data Mr. Adi Godrej Promoter/ Chairman/ Whole‐time Director Mr. Vivek Gambhir Managing Director

Ms. Nisaba Godrej Executive Director Mr. Nadir Godrej Non Executive Director

Mr. Jamshyd Godrej Non Executive Director Ms. Tanya Dubash Director

Mr. Aman Mehta Director Mr. Bharat Doshi Director

Mr. D. Shivakumar Director Dr. Omkar Goswami Director

Ms. Ireena Vittal Director Mr. Narendra Ambwani Director

Auditors ‐ Kalyaniwalla & Mistry ‐ Chartered Accountants

*as per last annual report


Company Absolute

reco Relative

reco Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Asian Paints BUY SO M Bajaj Corp HOLD SU H

Berger Paints BUY SO L Britannia Industries BUY SO L

Colgate HOLD SP M Dabur BUY SO M

Emami BUY SO H GlaxoSmithKline Consumer

Healthcare

HOLD SU M

Godrej Consumer BUY SO H Hindustan Unilever HOLD SP L

ITC BUY SO M Marico BUY SO M

Nestle Ltd HOLD SP L Pidilite Industries BUY SO M

United Spirits HOLD SP H

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


Consumer Goods

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91‐22) 4009 4400, Email: [email protected]

Aditya Narain

Head of Research

[email protected]

Coverage group(s) of stocks by primary analyst(s): Consumer Goods

Asian Paints, Bajaj Corp, Berger Paints, Britannia Industries, Colgate, Dabur, Godrej Consumer, Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline Consumer Healthcare, United Spirits

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 161 67 11 240* 1stocks under review

Market Cap (INR) 156 62 11

Date Company Title Price (INR) Recos

Recent Research

08‐May‐17 Emami Lacklustre show; FY18 hinges on innovation, distribution; Result Update

1,085 Buy

03‐May‐17 Marico Strong volume growth; GST, inflationary scenario to bode well; Result Update

315 Buy

02‐May‐17 DaburIndia

Volumes in revival mode; GST key monitorable; Result Update

287 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12‐month period

Hold appreciate up to 15% over a 12‐month period

Reduce depreciate more than 5% over a 12‐month period

Rating Expected to

One year price chart

1,000

1,200

1,400

1,600

1,800

2,000

May‐16

May‐16

Jun‐16

Jul‐16

Jul‐16

Aug‐16

Sep‐16

Oct‐16

Oct‐16

Nov‐16

Dec‐16

Dec‐16

Jan‐17

Feb‐17

Feb‐17

Mar‐17

Apr‐17

Apr‐17

(INR)

Godrej Consumer Products


Godrej Consumer

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Consumer Goods

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Godrej Consumer

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