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RESULTS REVIEW 2QFY16

26 OCT 2015

Godrej Consumer Products


NEUTRAL
INDUSTRY

FMCG

CMP (as on 23 Oct 2015) Rs 1,255


Target Price

Rs 1,342

Nifty

8,295

Sensex

27,471

KEY STOCK DATA


Bloomberg/Reuters

GCPL IN/GOCP.BO

No. of Shares (mn)

341

MCap (Rs bn)/(US$ mn)

428/6,588

6m avg traded value (Rs mn)

243

STOCK PERFORMANCE (%)


52 Week high / low

Rs 1,459 / 830

3M

6M

12M

Absolute (%)

1.6

15.2

32.5

Relative (%)

5.2

16.7

29.9

SHAREHOLDING PATTERN (%)


Promoters
FIs & Local MFs
FIIs
Public & Others

63.28
1.71
28.73
6.28

Source : BSE

Sachin Bobade
sachin.bobade@hdfcsec.com
+91-22-6171-7329
Mehernosh Panthaki
mehernosh.panthaki@hdfcsec.com
+91-22-6171-7340

Decent quarter, but soaps lose their lather


GCPLs revenue grew by 9.0% YoY to Rs 22.4bn (vs.
our estimate of Rs 23bn). The key positives were: (1)
Volume growth in the domestic market was 9%,
despite the current demand scenario, (2) Gross
margin (GM) expanded by 470bps, benefitting from
low input costs, (3) EBITDA margin expanded by
160bps to 18.1%, (5) Household insecticides (HI) and
hair colour segments maintained double-digit growth
momentum, and (6) Latin America and Europe
reported double-digit revenue growth, and Indonesia
business posted strong 580bps EBITDA margin
expansion.
However, there were concerns as (1) The soap
business reported a mere 3% value growth following
price deflation, (2) A&P spends increased by 100bps,
which reflects competition, (3) Indonesia business
posted subdued revenue performance due to
economic slowdown. Demand in the international
market seems to be better than the domestic. As
GCPLs ~48% revenue comes from international
markets (performing as per expectation), we are
optimistic about its business.
Financial Summary
(Rs mn)
Net Sales
EBITDA
APAT
EPS (Rs)
P/E (x)
EV/EBITDA (x)
ROE (%)

2QFY16
22,449
4,073
2,959
8.7

2QFY15 % Change
20,601
9.0
3,415
19.2
2,384
24.1
7.0
24.1

Source: Company, HDFC sec Inst Research

Revise TP to Rs 1,342 (+2.5%) and maintain PE


multiple of 32x on rolling forward EPS.
Maintain NEUTRAL.

Highlights for the quarter

Volume led growth: About 9% volume growth

1QFY16
20,977
3,153
2,126
6.2

in the domestic business was encouraging


considering slowdown in overall consumer sector.
HI business posted robust 13% value growth,
which was in line with peers.
Pricing pressure visible in soaps: Revenue growth
remained sluggish at 3% due to price deflation.
Most of the players in the industry have reported
price deflation in this category.
17% value growth in hair care was impressive. This
is the highest growth recorded in seven quarters.
Concall takeaways: (1) Rural slowdown persists,
but growing faster compared to urban, (2)
Deficient monsoon had broad-based impact on
overall and HI business, (3) A&P spends will
remain in 11-13% range, (4) HI business will grow
in low double digits for the next few years.
% Change
7.0
29.2
39.2
39.2

FY15
82,764
13,760
9,289
27.3
46.0
32.0
23.0

FY16E
92,543
16,610
11,380
33.4
37.5
26.6
23.9

FY17E
1,05,658
19,375
13,349
39.2
32.0
22.7
23.4

FY18E
1,19,090
22,027
15,207
44.7
28.1
19.8
22.4

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

GCPL : RESULTS REVIEW 2QFY16

Revenue growth was driven by


HI, hair colour and overseas
business. Organic constant
currency (CC) sales grew by 12%
YoY

India branded business grew by


10%, driven by 9% volume
growth.

International business delivered


14% organic CC growth, led by
Africa and Latin America

Gross margins expanded 470bps


YoY, aided by lower input cost

Higher staff cost (+130 bps), A&P


spends (+100 bps) and other
expenses (+80 bps) limited
EBITDA margin expansion to
160bps YoY

EBITDA margin expansion, lower


taxes, decline in interest cost
and relatively lower growth in
depreciation cost aided APAT

Quarterly Financials: Consolidated


Year to March (Rs mn)
Net Revenue
Expenditure
COGS
Employee Expenses
A&P Expenses
Other Expenses
EBITDA
Other Income
Depreciation
EBIT
Interest
PBT
Tax
APAT
MI
APAT after MI
Exceptional Items
RPAT after MI
AEPS
REPS
As % of Net Sales
COGS
Employee Expenses
A&P Expenses
Other Expenses
EBIDTA (%)
EBIT
PBT
APAT after MI
RPAT after MI

2QFY16
22,449
18,377
9,654
2,394
2,540
3,790
4,073
191
241
4,023
250
3,772
723
3,050
91
2,959
(88)
2,872
8.7
8.4

2QFY15
20,601
17,186
9,831
1,933
2,117
3,305
3,415
346
227
3,535
254
3,281
718
2,563
178
2,384
(39)
2,345
7.0
6.9

% Change
9.0
6.9
(1.8)
23.8
20.0
14.7
19.2
(44.9)
6.3
13.8
(1.6)
15.0
0.7
19.0
(49.2)
24.1
NA
22.4
24.1
22.4

1QFY16
20,977
17,824
9,154
2,388
2,511
3,770
3,153
168
236
3,085
265
2,820
563
2,257
131
2,126
(134)
1992.3
6.2
5.9

% Change
7.0
3.1
5.5
0.2
1.1
0.5
29.2
13.6
2.1
30.4
(5.7)
33.8
28.4
35.1
(30.6)
39.2
NA
44.1
39.2
44.1

43.0
10.7
11.3
16.9
18.1
17.9
16.8
13.2
12.8

47.7
9.4
10.3
16.0
16.6
17.2
15.9
11.6
11.4

-470 bps
130 bps
100 bps
80 bps
160 bps
80 bps
90 bps
160 bps
140 bps

43.6
11.4
12.0
18.0
15.0
14.7
13.4
10.1
9.5

-60 bps
-70 bps
-70 bps
-110 bps
310 bps
320 bps
340 bps
300 bps
330 bps

Source: Company, HDFC sec Inst Research

Page | 2

GCPL : RESULTS REVIEW 2QFY16

Soaps

HI

Hair Care

40

61,500

35

51,500

30
25

41,500

20

31,500

15

21,500

10

11,500

Revenue Contribution

EBITDA Contribution

Source: Company, HDFC sec Inst Research

2QFY16

1QFY16

4QFY15

3QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

58 60 57 57 55 55 54 53 53 54 53 54 53 55 53 53

Domestic Business International & Subsidiary Business


%
100
90
80 41 34 37 35 41 34 36 35 38 36 39 36 43 36 43 39
70
60
50
40
30 59 66 63 65 59 66 64 65 62 64 61 64 57 64 57 61
20
10
0

2QFY13

International & Subsidiary Business

42 40 43 43 45 45 46 47 47 46 47 46 47 45 47 47

1QFY13

100
90
80
70
60
50
40
30
20
10
0

Domestic Business

1QFY13

2QFY15

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

Source: Company, HDFC sec Inst Research

4QFY12

Growth in soaps was subdued


at 3% YoY (13% in 1QFY16),
impacted by price deflation.
Volume growth stood in
mid-single digits

Source: Company, HDFC sec Inst Research

3QFY12

Godrej Expert Rich Crme


delivered strong growth. The
launch of Godrej Nupur
Coconut Henna Crme
received encouraging
consumer response

Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15

1,500

Hair colour reported strong


growth of 17% YoY, led by
double-digit volume growth
(highest growth in the last 7
quarters; 12% YoY in 1QFY16)

INR/metric tonne

71,500

1QFY15

45

Palm Oil Prices: Benign

4QFY12

Good Knight drove category


penetration especially in rural
areas

Category-wise Performance

3QFY12

Despite deficient monsoon, HI


business reported a healthy
double-digit volume, driven by
sales growth of 13% YoY (15%
in 1QFY16)

Source: Company, HDFC sec Inst Research

Page | 3

GCPL : RESULTS REVIEW 2QFY16

Strong CC growth of 33%


YoY in Africa led by
outperformance in Darling
business (+41% growth)

Revenue

EBITDA Margin (RHS)

4,000

25
20

3,000
2,500

15

2,000
10

1,500
1,000

500
0

EBITDA Margin (RHS) %


25
20

3,000
2,500

15

2,000
10

1,500
1,000

500
0

Source: Company, HDFC sec Inst Research

Source: Company, HDFC sec Inst Research

Latin America SKU Rationalisation Dented Margin

Other Geographies

Rs Mn

Revenue

EBITDA Margin (RHS)

4,000

25

3,500

20

3,000

15

2,000
10

1,500

Rs Mn
4,000

Revenue

EBITDA Margin (RHS)

%
25

3,500

20

3,000
2,500

15

2,000
10

1,500
1,000

1,000
500

Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16

Sharp fall in EBITDA margins


(-390 bps) was due to one-off
SKU rationalisation, adverse
channel mix in Chile and
upfront marketing
investments

Revenue

3,500

3,500

2,500

24% YoY CC growth in Latin


America was driven by success
of new launches and superior
execution

Rs Mn
4,000

Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16

Megasari margins expanded


580bps YoY, driven by low
input cost and optimisation of
marketing investments

Rs Mn

Africa Huge Growth Potential

Source: Company, HDFC sec Inst Research

500

5
0

Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16

Megasari reported a mere 7%


CC revenue growth (10%
ex-food distribution),
impacted by overall macro
economic slowdown in
Indonesia

Asia High Margin Business

Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16

Overseas business organic


EBITDA margins at 15%
expanded 210bps YoY, led by
Indonesia (+580bps), Africa
(+40bps)

Source: Company, HDFC sec Inst Research

Page | 4

GCPL : RESULTS REVIEW 2QFY16

Assumptions
Growth (Y-o-Y %)
DOMESTIC Total Revenue
Personal wash (soaps)
Hair colour
Household insecticide
INTERNATIONAL BUSINESS
% Of Sales
COGS (Consol)
A&P (Consol)

FY14

FY15

FY16E

FY17E

FY18E

13.9
6.3
30.5
16.4
24.2

8.6
8.5
12.6
9.4
9.2

10.8
7.0
13.9
12.2
13.0

12.6
6.1
14.2
16.3
16.0

13.4
8.2
14.2
16.3
12.0

46.8
14.6

46.4
14.6

45.6
14.1

45.4
13.8

45.5
13.6

Source: Company, HDFC sec Inst Research

Change In Estimates
Rs Mn
Revenue
EBITDA
EBITDA Margin
PAT
EPS

New
92543
16610
17.9
11380
33.4

FY16E
Old Change (%)
92543
16828
(1.3)
18.2
-20 bps
11070
2.8
32.5
2.8

New
105658
19375
18.3
13349
39.2

FY17E
Old Change (%)
105658
19627
(1.3)
18.6
-20 bps
12933
3.2
38.0
3.2

New
119090
22027
18.5
15207
44.7

FY18E
Old Change (%)
119090
22310
(1.3)
18.7
-20 bps
14901
2.1
43.8
2.1

Source: HDFC sec Inst Research

Page | 5

GCPL : RESULTS REVIEW 2QFY16

Peer Valuations
CMP
(Rs)
Asian Paints
859
Berger Paints
221
Colgate
941
Dabur
263
Godrej Consumer 1,255
Gulf Oil Lubricants
488
Hindustan Unilever 800
ITC
358
Marico
387
Pidilite
572
Company

TP
(Rs.)
825
235
938
288
1,342
614
794
377
440
664

Rating
NEU
BUY
NEU
NEU
NEU
BUY
NEU
BUY
BUY
BUY

Mcap
(Rs bn)
822
153
256
462
427
24
1731
2836
250
293

Diluted EPS (Rs)


FY15 FY16E FY17E
14.5
17.9
20.1
3.8
5.1
6.4
20.5
21.5
23.9
6.1
7.2
8.2
27.3
33.4
39.2
15.6
18.2
21.3
16.9
19.3
20.6
11.9
13.3
15.2
8.9
11.3
12.7
10.1
13.7
18.2

FY15
59.0
57.9
45.9
43.1
46.0
31.3
47.4
30.0
43.5
56.8

P/E( x)
FY16E
47.9
43.3
43.7
36.4
37.5
26.8
41.4
26.9
34.4
42.0

FY17E
42.6
34.7
39.4
32.1
32.0
22.9
38.9
23.6
30.5
31.6

EV/EBITDA(x)
FY15 FY16E FY17E
37.1
30.0
26.3
30.9
24.5
20.1
31.4
28.7
25.5
35.2
29.6
25.4
32.0
26.0
21.7
19.0
15.9
13.6
32.7
29.1
27.3
19.6
17.2
15.0
28.4
22.2
19.1
37.3
26.4
20.0

FY15
31.7
22.3
81.3
35.7
23.0
41.4
104.2
33.6
36.0
24.6

ROE (%)
FY16E
32.5
25.9
69.7
33.3
23.9
42.3
107.1
33.2
34.4
28.2

FY17E
30.0
27.4
66.0
30.0
23.4
39.1
104.3
33.5
30.0
30.9

Source: Company, HDFC sec Inst Research

Page | 6

GCPL : RESULTS REVIEW 2QFY16

Income Statement
(Rs mn)
Net Sales
Growth (%)
Material Expenses
Employee Expenses
A&P Expenses
Other Operating Expenses
EBIDTA
EBIDTA (%)
EBIDTA Growth (%)
Other Income
Depreciation
EBIT
Interest
PBT
Tax
Minority Interest & Associate
Core PAT
Core PAT Growth (%)
EO items (net of tax)
RPAT
RPAT Growth (%)
EPS
EPS Growth (%)

Balance Sheet
FY14
76,024
18.5
35,547
7,489
14,959
6,401
11,629
15.3
17.2
646
819
11,456
1,074
10,383
2,104
596
7,683
(1.6)
40
7,723
(3.0)
22.6
(3.0)

Source : Company, HDFC sec Inst Research

FY15
82,764
8.9
38,415
7,696
16,099
6,793
13,760
16.6
18.3
854
908
13,706
1,002
12,705
2,723
693
9,289
20.9
(218)
9,071
17.5
27.3
17.5

FY16E FY17E FY18E


92,543 1,05,658 1,19,090
11.8
14.2
12.7
42,159 47,947 54,147
8,639
9,923 11,158
17,570 19,833 22,151
7,564
8,581
9,607
16,610 19,375 22,027
17.9
18.3
18.5
20.7
16.6
13.7
878
864
859
921
929
937
16,567 19,310 21,950
1,020
1,039
1,060
15,547 18,270 20,890
3,336
3,923
4,485
832
998
1,198
11,380 13,349 15,207
22.5
17.3
13.9
(86)
11,294 13,349 15,207
24.5
18.2
13.9
33.4
39.2
44.7
24.5
18.2
13.9

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Minority Interest
Long-term Debt
Short-term Debt
Total Debt
Deferred Taxes
Long-term Provisions
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Goodwill
LT Loans & Advances
Investments
Inventories
Trade Receivables
Cash & Equivalents
ST Loans & Advances
Other Current Assets
Current Assets
Other Current Liabilities & Provs
Current Liabilities
Net current Assets
TOTAL APPLICATION OF FUNDS

FY14

FY15

FY16E

FY17E

FY18E

340
37,414
37,754
2,251
6,717
17,012
23,728
(203)
238
63,768

340
42,767
43,107
1,620
20,230
1,467
21,697
(312)
263
66,376

340
51,612
51,953
2,452
20,230
1,467
21,697
(312)
290
76,080

340
340
61,921 73,480
62,262 73,820
3,450
4,648
20,230 20,230
1,467
1,467
21,697 21,697
(312)
(312)
319
351
87,415 1,00,204

15,554
1,671
35,660
1,574
1,363
10,821
7,113
7,048
607
1,588
27,177
321
18,909
7,947
63,768

15,069
2,246
40,441
2,081
343
10,717
8,046
8,942
1,601
1,590
30,896
977
23,724
6,196
66,376

14,348
2,246
40,441
1,041
10,343
12,060
8,533
7,740
2,251
1,468
32,053
950
23,441
7,661
76,080

13,619 12,882
2,246
2,246
40,441 40,441
1,145
1,259
20,343 30,343
13,802 15,542
9,845 11,050
9,123 12,436
2,638
2,993
1,742
1,842
37,150 43,863
921
890
26,607 29,941
9,622 13,032
87,415 1,00,204

Source : Company, HDFC sec Inst Research

Page | 7

GCPL : RESULTS REVIEW 2QFY16

Key Ratios

Cash Flow Statement


(Rs mn)
Reported PAT
Non-operating & EO items
PAT from Operations
Interest, Dep & Others
Working Capital Change
OPERATING CASH FLOW (a)
Capex
Free Cash Flow
Non-operating income
Investments & Others
INVESTING CASH FLOW ( b )
Debt Issuance
Interest
Dividend
FINANCING CASH FLOW ( c )
Fx effect
EO items
NET CASH FLOW (a+b+c)
Closing Cash

FY14
FY15 FY16E FY17E FY18E
7,723
9,071 11,294 13,349 15,207
297 (3,951)
(16)
15
(148)
7,426 13,023 11,310 13,334 15,355
1,892
1,909
1,941
1,968
1,997
1,693
(975) (1,601)
(652)
(181)
11,011 13,957 11,650 14,650 17,171
(1,329) (1,904)
(200)
(200)
(200)
9,681 12,053 11,450 14,450 16,971
198
342
376
413
455
(4,927) (10,794) (10,000) (10,000) (10,000)
(4,728) (10,452) (9,624) (9,587) (9,545)
(2,713)
2,995
(1,074) (1,002) (1,020) (1,039) (1,060)
(1,991) (2,111) (2,534) (3,040) (3,648)
(5,777)
(118) (3,554) (4,080) (4,708)
356
628
611
600
595
40
(218)
(86)
(428)
1,894 (1,203)
1,384
3,312
7,048
8,942
7,740
9,123 12,436

Source : Company, HDFC sec Inst Research

PROFITABILITY (%)
GPM
EBITDA Margin
EBIT Margin
APAT Margin
RoE
RoIC
RoCE
EFFICIENCY
Tax Rate (%)
Asset Turnover (x)
Inventory (days)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E
Interest Coverage
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
BV (Rs/sh)
DPS (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)

FY14

FY15

FY16E

FY17E

FY18E

53.2
15.3
15.1
10.1
21.7
15.6
16.1

53.6
16.6
16.6
11.2
23.0
17.7
18.0

54.4
17.9
17.9
12.3
23.9
21.3
21.3

54.6
18.3
18.3
12.6
23.4
25.1
24.6

54.5
18.5
18.4
12.8
22.4
29.0
28.0

20.3
1.4
51.1
34.6
100.6
(14.9)
2.0
0.4
10.7

21.4
1.5
47.5
33.4
112.8
(31.8)
1.6
0.3
13.7

21.5
1.6
44.9
32.7
113.4
(35.7)
1.3
0.3
16.2

21.5
1.8
44.7
31.7
105.9
(29.4)
1.1
0.2
18.6

21.5
2.1
45.0
32.0
106.3
(29.3)
1.0
0.1
20.7

22.6
20.0
110.2
5.8

27.3
23.0
127.9
6.2

33.4
28.2
153.9
7.4

39.2
32.9
184.1
8.9

44.7
37.2
218.1
10.7

55.6
11.4
38.2
2.5
2.2
2.3
0.5

46.0
9.8
32.0
3.2
2.7
2.8
0.5

37.5
8.2
26.6
2.6
2.6
2.7
0.6

32.0
6.8
22.7
3.3
3.3
3.4
0.7

28.1
5.8
19.8
3.9
3.9
4.0
0.9

Source : Company, HDFC sec Inst Research

Page | 8

GCPL : RESULTS REVIEW 2QFY16

RECOMMENDATION HISTORY
Godrej Consumer

1,600

Date
3-Nov-14
6-Feb-15
29-Apr-15
09-Oct-15
26-Oct-15

TP

1,400
1,200
1,000

CMP
970
1,123
1,098
1,250
1,255

Reco
SELL
SELL
SELL
NEU
NEU

Target
875
1,010
990
1,310
1,342

800

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

600

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 9

GCPL : RESULTS REVIEW 2QFY16

Disclosure:
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Page | 10