INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
Godrej Consumer (GCPL IN)
India & Indonesia shines; Africa disappoints
INDIA | FMCG | Quarterly Update
30 July 2018
Top takeaways from Q1FY19 GCPL 1QFY19 results were better than our estimates due to 1) Strong performance of HI
portfolio in India and 2) recovery in Indonesia business. Domestic business saw volume growth of 14%, much ahead of our estimates 10-12% and GCPL has reported highest volume growth (adjusted for base) within consumer pack for companies that have reported results so far. Rural areas (17%) grew ahead of urban areas (13%) and management expects this outperformance to continue in medium term
All segment performed well in Domestic business – HI segment saw 2-years comparable growth of 11% yoy owing to favourable weather condition, focus on smaller packs and solid traction on new launches (Power chip and liquid vaporizer). Soaps growth (30% of domestic sales) normalized after three consecutive quarter of 20% growth. Hair colours growth re-bounded in 1QFY19 (after seeing subdued growth of 3% in 4QFY18 due to channel up stocking done in 3QFY18 post GST MRP cuts) on back of distribution expansion
International business performance – mixed bag: International saw third consecutive quarter of subdued growth (7% revenue CC growth) due to macro challenges in South Africa business impacting Africa business. Indonesia business saw healthy improvement (Ebitda up 21% yoy) in profitability owing to market share gains in HI, cost savings initiatives and lower promotional spends
EBITDA margins grew 28% yoy, ahead of our estimates due to increased contribution from high-margin HI portfolio in India and recovery in high-margin Indonesia business.
Conference call takeaways Management expects bottomline growth to be better than topline growth in medium
terms on back of cost savings initiatives and margin accretive new launches across portfolio
Africa margin were impacted in 1QFY19 due to higher A&P for wet hair care portfolio and management expects margin to improve in medium term as benefits of ad spends accrue over a period of time. GCPL highlighted that despite getting all approvals for HI launch in Africa, it is more focussed on ramping up wet hair care portfolio
Indonesia business – Management reiterated although market environment continues to remain challenging, it is focussed on improving profitability by launching new products and better optimization of operating costs
Outlook and recommendation: We believe that GCPL is poised for healthy volume growth
in the medium term based on: (1) new product launches in India, mainly on HI and hair colours side (subdued for a while); expects to launch 10 new products in FY19, (2) macro-economic tailwinds and favourable base supporting Indonesia business, and (3) re-launching of the ‘Darling’ brand and scaling up of its wet-care portfolio driving its Africa business. We retain BUY and increase our target to Rs 1,430 (45x Sept-20 EPS) from Rs 1,260 earlier (40x June-20 EPS).
BUY (Maintain) CMP RS 1311 / TARGET RS 1430(10%)
COMPANY DATA
O/S SHARES (MN) : 681
MARKET CAP (RSBN) : 907
MARKET CAP (USDBN) : 13
52 - WK HI/LO (RS) : 1379 / 859
LIQUIDITY 3M (USDMN) : 9.1
PAR VALUE (RS) : 1
SHARE HOLDING PATTERN, %
Jun 18 Mar 18 Dec 17
PROMOTERS : 63.3 63.3 63.3
FII / NRI : 28.1 28.0 27.7
FI / MF : 2.3 2.2 2.3
NON PRO : 1.5 1.6 0.3
PUBLIC & OTHERS : 4.9 4.9 6.4
Key Financials
Rs mn FY19 FY20E FY21E
Net Sales 109,928 123,499 138,914
EBIDTA 24,005 27,542 31,463
Net Profit 17,035 20,058 23,336
EPS, Rs 25.0 29.4 34.3
PER, x 43.7 37.1 31.9
EV/EBIDTA, x 31.4 27.1 23.4
PBV, x 6.9 6.1 5.3
ROE, % 23.5 24.2 24.6
Debt/Equity (%) 34.8 30.4 26.6 Vishal Gutka (+ 9122 6246 4118) [email protected] Naveen Kulkarni & Preeyam Tolia
(Rs mn) Q1FY19 Q4FY18 Qoq %
Q1FY18 yoy % *PC yoy
estimates%
Comments
Net Sales 24,485 24,944 -2% 21,728 13% 15% Strong performance in domestic (vol. 14%) and recovery in Indonesia
Gross Profits 13,539 14,568 -7% 11,594 17% 17%
Gross Margin (%) 55.3 58.4 -311 bps 53.4 193 bps 91 bps Benign input cost led to gross margin expansion
Staff costs 2,962 2,748 8% 2,404 23% 25%
Ad spends 2,090 1,816 15% 1,906 10% 5%
Other operating expenses 4,272 4,299 -1% 3,833 11% 15%
EBITDA 4,766 6,395 -25% 3,543 34% 22% Better cost savings initiatives drive EBITDA growth
EBITDA margin (%) 19.5 25.6 -617 bps 16.3 316 bps 101 bps
PBT 3,788 7,373 -49% 2,885 31% 27%
PAT 4,050 6,172 -34% 2,252 80% 27%
Adj. PAT 3,130 4,678 -33% 2,300 36% 23%
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
Segment details
India Business (Rs m) Q1FY18 Q1FY19 yoy
Soaps 4,891 5,380 10%
Hair care 1,634 1,830 12%
HI 3,803 4,450 17%
Others 992 1,200 21%
Exports 550 550 0%
Total 11,763 13,410 14%
International Business (Rs m) Q1FY18 Q1FY19 yoy (%) yoy cc. (%)
Indonesia 3,239 3,530 9% 10%
GAUM 5,127 5,640 10% 5%
Others 2,575 2,730 6% 8%
Total 10,941 11,900 9% 7%
International business margin Q1FY18 Q1FY19 yoy (%)
Indonesia 19.80 22.00 220bps
GAUM 15.50 13.00 -250bps
Others 6.10 6.00 -10bps
Source: Company, PhillipCapital India Research
Domestic volume growth (%)
Source: Company, PhillipCapital India Research
13.0
9.0 9.0
6.0
3.0
9.0
(3.0)
5.0
-
10.0
18.0
6.0
14.0
-5
0
5
10
15
20
Page | 3 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
Other key takeaways Macro:
Rural (c. 17%) grew ahead of urban growth (c. 13%); it expects rural demand to continue to outpace urban growth for FY19 on back of good monsoon, government spending before general election.
Domestic business: Household Insecticides –
HI saw healthy growth of 17% comparable sales growth after six quarters of subdued sales performance driven by good traction from new launches (GoodKnight Power Chip and GoodKnight Power Activ+ liquid vaporizer) and lower SKUs (GoodKnight Green Shakti, GoodKnight Fabric Roll-on and GoodKnight Cool Gel).
Expect double digit growth to sustain on back of lower base and traction from new launches.
Plans to launch new products in HI in the next 3-4 months.
HIT – gel stick and Anti Roach needs more marketing initiative in terms of product preposition to attract customers.
Soaps –
Soap segment growth normalized to 10% after seeing three consecutive quarters of 20% growth.
Scope remains limited for taking price hikes in the near term due to benign palm oil prices.
Hair Colours –
Forayed into herbal hair colour category (25% of the total hair colour category) by launching Nupur – Henna Based Hair Colour.
Company expects, ramp up in distribution expansion along with rejuvenating marketing strategy will further drive growth in the segment.
GCPL is the first company to launched hair colour in LUP (Rs 10).
New Innovation
Brand Market size (Rs bn) Features
Good Knight - Power Chip Rs 17bn (coil market) Last for 15 days
Good Knight - Activ + Rs 20bn (electric vapouriser market) 50% more efficacy than regular liquid vapouriser
Nupur Hebal Based Powder Rs 10bn (herbal hair powder market) Strong naturals credentials
Easy application
Source: Company, PhillipCapital India Research
International business: Indonesia –
Market environment still remain challenging, however it has regained market share leadership in HI.
Focus on retaining/stabilizing existing business (HI and Air Freshners) rather than focus on hair colour business.
Page | 4 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
One-year forward P/E Band EV/EBITDA band
Source: PhillipCapital India Research Estimate
12x
24x
36x
48x
0
200
400
600
800
1000
1200
1400 Rs
9x
18x
27x
36x
0
200000
400000
600000
800000
1000000 Rs mn
Page | 5 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
Financials
Income Statement Y/E Mar, Rs mn FY18 FY19E FY20E FY21E
Net sales 97,680 109,928 123,499 138,914
Growth, % 5.7 12.5 12.3 12.5
Other income 753 828 911 1,002
Total income 98,433 110,756 124,410 139,916
Raw material expenses -42,744 -47,873 -53,618 -60,052
Employee expenses -10,574 -11,801 -13,099 -14,540
Other Operating expenses -24,153 -27,078 -30,151 -33,861
EBITDA (Core) 20,962 24,005 27,542 31,463
Growth, % 9.6 14.5 14.7 14.2
Margin, % 21.5 21.8 22.3 22.6
Depreciation -1,557 -1,682 -1,827 -1,976
EBIT 19,405 22,323 25,716 29,487
Growth, % 9.5 15.0 15.2 14.7
Margin, % 19.9 20.3 20.8 21.2
Interest paid -1,607 -1,688 -1,350 -1,080
Other Non-Operating Income 1,076 1,205 1,349 1,511
Pre-tax profit 20,378 21,839 25,715 29,918
Tax provided -4,047 -4,805 -5,657 -6,582
Profit after tax 16,331 17,035 20,058 23,336
Others (Minorities, Associates) 11 0 0 0
Net Profit 18,137 17,035 20,058 23,336
Growth, % 26.0 2.4 17.7 16.3
Net Profit (adjusted) 16,632 17,035 20,058 23,336
Unadj. shares (m) 681 681 681 681
Wtd avg shares (m) 681 681 681 681
Balance Sheet Y/E Mar, Rs mn FY18E FY19E FY20E FY21E
Cash & bank 8,980 15,860 21,687 32,515
Debtors 12,455 13,774 15,350 17,128
Inventory 15,777 17,539 19,497 21,672
Loans & advances 867 2,075 2,578 3,178
Other current assets 6,586 6,586 6,586 6,586
Total current assets 44,665 55,834 65,699 81,080
Investments 9,973 9,973 9,973 9,973
Gross fixed assets 86,738 89,238 91,738 94,238
Less: Depreciation -3,588 -5,269 -7,096 -9,072
Add: Capital WIP 839 839 4,272 4,512
Net fixed assets 83,989 84,807 88,914 89,678
Total assets 140,664 152,651 166,623 182,767
Current liabilities 48,789 51,945 55,519 59,566
Total current liabilities 48,789 51,945 55,519 59,566
Non-current liabilities 28,256 28,256 28,256 28,256
Total liabilities 77,044 80,200 83,774 87,821
Paid-up capital 681 681 681 681
Reserves & surplus 62,938 71,769 82,167 94,264
Shareholders’ equity 63,620 72,450 82,848 94,945
Total equity & liabilities 140,664 152,651 166,623 182,767
Source: Company, PhillipCapital India Research Estimates
Cash Flow Y/E Mar, Rs mn FY18E FY19E FY20E FY21E
Pre-tax profit 20,378 21,839 25,715 29,918
Depreciation 1,557 1,682 1,827 1,976
Chg in working capital 1,290 -1,133 -464 -505
Total tax paid -4,085 -4,805 -5,657 -6,582
Cash flow from operating activities 19,140 17,583 21,420 24,807
Capital expenditure -3,682 -2,500 -5,934 -2,740
Cash flow from investing activities -2,524 -2,500 -5,934 -2,740
Free cash flow 16,616 15,083 15,487 22,067
Equity raised/(repaid) 63 0 0 0
Debt raised/(repaid) -8,200 0 0 0
Dividend (incl. tax) -7,379 -8,204 -9,660 -11,239
Cash flow from financing activities -15,505 -8,204 -9,660 -11,239
Net chg in cash 1,111 6,879 5,827 10,829
Valuation Ratios
FY18E FY19E FY20E FY21E
Per Share data
EPS (INR) 24.4 25.0 29.4 34.3 Growth, % 26.0 2.4 17.7 16.3 Book NAV/share (INR) 93.4 106.3 121.6 139.4 FDEPS (INR) 24.4 25.0 29.4 34.3 CEPS (INR) 27.1 27.5 32.1 37.2 CFPS (INR) 23.9 24.0 29.5 34.2 DPS (INR) 9.0 10.0 11.8 13.7 Return ratios
Return on assets (%) 12.8 12.3 13.1 13.7 Return on equity (%) 26.1 23.5 24.2 24.6 Return on capital employed (%) 19.1 18.8 19.7 20.5 Turnover ratios
Asset turnover (x) 1.4 1.6 1.7 1.9 Sales/Total assets (x) 0.7 0.7 0.8 0.8 Sales/Net FA (x) 1.2 1.3 1.4 1.6 Working capital/Sales (x) (0.1) (0.1) (0.1) (0.1) Fixed capital/Sales (x) - - - - Working capital days (49.0) (39.7) (34.0) (28.9) Liquidity ratios Current ratio (x) 0.9 1.1 1.2 1.4 Quick ratio (x) 0.6 0.7 0.8 1.0 Interest cover (x) 12.1 13.2 19.0 27.3 Dividend cover (x) Total debt/Equity (%) 39.6 34.8 30.4 26.6 Net debt/Equity (%) 25.5 12.9 4.3 (7.7) Valuation PER (x) 44.7 43.7 37.1 31.9 Price/Book (x) 11.7 10.3 9.0 7.8 EV/Net sales (x) 7.8 6.9 6.1 5.3 EV/EBITDA (x) 36.3 31.4 27.1 23.4 EV/EBIT (x) 39.2 33.7 29.1 25.0
Page | 6 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
Stock Price, Price Target and Rating History
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.
Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.
B (TP 1462) N (TP 1240) N (TP 1220) N (TP 1220)
N (TP 1300)
N (TP 1500) N (TP 1650)
B (TP 1840)
N (TP 1920) N (TP 960) B (TP 1100)
B (TP 1240) B (TP 1260)
200
500
800
1100
1400
1700
J-15 S-15 O-15 D-15 N (TP 1220) M-16 M-16 J-16 N (TP 1500) S-16 N-16 D-16 B (TP 1840) M-17 M-17 J-17 J-17 S-17 O-17 D-17 J-18 M-18 M-18 J-18
Page | 7 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
MANAGEMENT
Vineet Bhatnagar (Managing Director)
Kinshuk Bharti Tiwari (Head – Institutional Equity)
Jignesh Shah (Head – Equity Derivatives)
REGIONAL MEMBER COMPANIES
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UNITED STATES
Phillip Futures Inc.
MALAYSIA
Phillip Capital Management Sdn Bhd
www.poems.com.my
INDONESIA
PT Phillip Securities Indonesia
www.phillip.co.id
FRANCE
King & Shaxson Capital Ltd.
www.kingandshaxson.com
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HONG KONG
Phillip Securities (HK) Ltd
www.phillip.com.hk
CHINA
Phillip Financial Advisory (Shanghai) Co. Ltd.
www.phillip.com.cn
UNITED KINGDOM
King & Shaxson Ltd.
www.kingandshaxson.com
SRI LANKA
Asha Phillip Securities Limited
www.ashaphillip.net/home.htm
RESEARCH
Automobiles
Dhawal Doshi
Nitesh Sharma, CFA
Agro Chemicals
Varun Vijayan
Banking, NBFCs
Manish Agarwalla
Pradeep Agrawal, Sujal Kumar
Consumer
Naveen Kulkarni, CFA, FRM
Preeyam Tolia, Vishal Gutka
Cement
Vaibhav Agarwal
Engineering, Capital Goods
Jonas Bhutta
Vikram Rawat
Economics
Anjali Verma
Raag Haria
IT Services
Vibhor Singhal
Shyamal Dhruve
Infrastructure
Vibhor Singhal
Deepika Bhandari
Logistics, Transportation & Midcap
Vikram Suryavanshi
Media
Naveen Kulkarni, CFA, FRM
Vishal Gutka
Metals
Dhawal Doshi
Vipul Agrawal
Midcaps
Deepak Agarwal
Akshay Mokashe
Pharma & Specialty Chem
Surya Patra
Mehul Sheth, Rishita Raja
Retail & Real Estate
Vishal Gutka
Dhaval Somaiya
Strategy
Naveen Kulkarni, CFA, FRM
Neeraj Chadawar
Telecom
Naveen Kulkarni, CFA, FRM
Technicals
Subodh Gupta, CMT
Production Manager
Ganesh Deorukhkar
Editor
Roshan Sony
Sr. Manager – Equities Support
Rosie Ferns
SALES & DISTRIBUTION
Kishor Binwal
Bhavin Shah
Ashka Gulati
Archan Vyas
Sales Trader
Dilesh Doshi
Execution
Mayur Shah
CORPORATE COMMUNICATIONS
Zarine Damania
Page | 8 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
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Page | 9 | PHILLIPCAPITAL INDIA RESEARCH
GODREJ CONSUMER PRODUCT QUARTERLY UPDATE
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