date: 13th january 2020 - hdfc securities

Date: 13th January 2020

2

Page

Equity Research Pick of the Week – Retail Research

Leadership position in various products in the domestic and international FMCG

Accelerating innovation and building powerful brands help to generate additional growth

Company seems to be back on growth path after 3-4 sluggish quarters

Godrej Consumer Products Ltd

INDUSTRY

CMP

RECOMMEND ed

ADD ON DIPS TO

SEQUENTIAL TARGETS

TIME HORIZON ed

Personal Products

Rs 738

Buy at CMP and add on declines

Rs 664-669

Rs 816- 876 Rs 621

4 quarters

Investors may sell 60-65% of their holdings on first target being achieved and later keep a stop loss of first target for the balance holdings, in case the second target takes time to be achieved.

Investors may also maintain Rs 621 as level below which investment position needs to be reviewed, including the possibility to exit

Successful integration of acquisitions to lead to diversified product portfolio and geographic presence Sound Financial Profile

3

Page


HDFC Scrip Code GODCONEQNR

BSE Code 532424

NSE Code GODREJCP

Bloomberg GCPL IN

CMP Jan 10, 2020 738.0

Equity Capital (cr) 102.2

Face Value (Rs) 1.0

Eq- Share O/S(cr) 102.2

Market Cap(Rs cr) 75446.6

Book Value (Rs) 71.1

Avg.52 Wk Volume 1198412

52 Week High 804.7

52 Week Low 577.0

Shareholding Pattern % (Sept 30, 2019)

Promoters 63.2

Institutions 30.0

Non Institutions 6.8

Total 100.0

Investment rationale: • Leadership position in various products in the domestic and international FMCG markets • Accelerating innovation and building powerful brands help to generate additional growth • Company expects sales growth to accelerate in coming quarters led by gradual improvement in consumer demand • Successful integration of acquisitions to lead to diversified product portfolio and geographic presence • Sound Financial Profile

Concerns: • Rising Competition • Macro-economic challenges • Currency fluctuations • Fluctuations in input prices • Some of the acquisitions in the past did not perform well

Company profile: Godrej Consumer Products Limited (GCPL) is one of India’s popular and large FMCG companies promoted by India-based global conglomerate, the Godrej Group. GCPL was formed out due to a de-merger of the 100 year old consumer products division of the erstwhile Godrej Soaps Limited in April 2001. The company has 1.15 bn consumers globally with operations in more than 90 countries. It offers products in soap, toiletries, cosmetics, household care, hair care and fabric care categories.

View and valuation: GCPL is one of the marquee companies of the Godrej Group, a large and established business house in the country. GCPL has strong brand equity. In household insecticides, GCPL is the leader in India and Indonesia and is expanding its footprint in Africa. GCPL is the leader in serving the hair care needs of women of African descent, the number one player in hair colour in India and Sub-Saharan Africa, and among the leading players in Latin America. Apart from this, Company enjoys number two position in soaps in India, is the number one player in air fresheners in India and Indonesia, and a leader in wet tissues in Indonesia. Over the past five years, GCPL has undertaken several overseas acquisitions to build its presence in key emerging markets outside India, with focus on Asia, Africa and Latin America. The company is focusing on improving its volume growth through innovations, enhancing the distribution reach and adequate brand building and promotional activities in the near term. Benign input prices would help the company clock better margins in the near term. GCPL has suggested sharp improvement ahead in the struggling parts of the business and sustained strength in the parts that did well. India and Indonesia volume growth has picked pace lately. Long term demand growth concerns in Household Insecticides and macro issues in Nigeria are key concerns faced currently by GCPL. We feel investors could buy the stock at the CMP and add on dips to Rs 664-669 band (33.5x FY22E EPS) for sequential targets of Rs 816 (41.0x FY22E EPS) and Rs 876 (44.0x FY22E EPS) in 4 quarters. At CMP of Rs 738 the stock quotes at 37.1x FY22E EPS. FUNDAMENTAL ANALYST

Abdul Karim

[email protected]

mailto:[email protected]

4

Page


Financial Summary YE March (Rs cr) Q2FY20 Q2FY19 YoY (%) Q1FY20 QoQ (%) FY19 FY20E FY21E FY22E

Net Sales 2630.2 2659.2 -1.1% 2348.8 12.0% 10314.3 10765.4 11542.6 12482.8 EBITDA 571.9 486.8 17.5% 455.6 25.5% 2099.6 2242.3 2444.3 2697.3 APAT 413.3 318.0 30.0% 407.4 1.4% 2139.6 1612.7 1806.6 2033.9 Diluted EPS (Rs) 20.9 15.8 17.7 19.9 P/E (x) 35.3 46.8 41.8 37.1 EV / EBITDA (x) 36.9 34.4 31.6 28.6 RoE (%) 29.4% 20.4% 21.0% 21.6%

Key Highlights

Godrej Consumer Products Limited (GCPL) is one of India’s popular and large FMCG companies promoted by India-based global conglomerate, the Godrej Group.

GCPL has 1.15 bn consumers globally with operations in more than 90 countries. It offers products in soap, toiletries, cosmetics, household care, hair care and fabric care categories.

GCPL has strong brand equity. In household insecticides, GCPL is the leader in India and Indonesia and is expanding its footprint in Africa. GCPL is the leader in serving the hair care needs of women of African descent, the number one player in hair colour in India and Sub-Saharan Africa, and among the leading players in Latin America.

GCPL is focusing on improving its volume growth through innovations, enhancing the distribution reach and adequate brand building and promotional activities in the near term.

(Source: Company, HDFC sec)

Company profile:

Godrej Consumer Products Limited (GCPL) is one of India’s popular and large FMCG companies promoted by India-based global conglomerate, the Godrej Group. GCPL was formed out due to a de-merger of the 100 year old consumer products division of the erstwhile Godrej Soaps Limited in April 2001. The company has 1.15 bn consumers globally with operations in more than 90 countries. It offers products in soap, toiletries, cosmetics, household care, hair care and fabric care categories. 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) with a ~12% market share 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. GCPL has manufacturing plants in Assam, Goa, Himachal Pradesh, Jammu & Kashmir, Madhya Pradesh, Meghalaya, Pondicherry, Sikkim and Tamil Nadu. Over the past decade, GCPL has undertaken several overseas acquisitions to build its presence in key emerging markets outside India, with focus on Asia, Africa and Latin America. These acquisitions give GCPL access to well-established international brands and the subsidiaries’ distribution and marketing networks.

5

Page


Business Overview Product Overview:

Business Model: More noticeable and profitable to the company are the following brands specifically



6

Page

Equity Research Pick of the Week – Retail Research Product Categories

Asia Africa Latin America

Hair Care Godrej Expert, Bblunt, Godrej Renew, Nupur, Godrej Professional

Darling, Inecto, Renew, Frika Ilicit, Issue, Roby, 919 (Hair Colors)

Home Care Good Night, HIT, Godrej Aer, Ezee, Air Freshener Stella

- -

Personal Care Godrej No 1, Cinthol (Soap), Protekt (Handwash), Mitu

- Pamelagrant Beauty, Villenwuve

Revenue Mix-% Geography wise Category wise

International Business Advertisement and Sales Promotion Expense

7

Page


Quarterly Volume growth (YoY)-%

Industry Overview The FMCG industry, the fourth largest sector in the Indian economy, is divided into 3 segments – Food & Beverages, Health Care, and Household and Personal Care. At the end of 2018, the Food & Beverage segment had 20% of the market share, Health Care took 30% of the markets share, while Household and Personal Care had 50%. According to IBEF, Indian Brand Equity Foundation, the FMCG market in India grew at a CAGR of 27.86% in FY 2018 and was expected to touch $103.7 bn in the year 2020 from $52.75 bn in the year 2018.

(Source: Investing.com, HDFC

sec)


sec)

8

Page


Rural Market: Leading players of consumer products have a strong distribution network in rural India; they also stand to gain from the contribution of technological advances like internet and e-commerce to better logistics. Rural FMCG market size is expected to touch US$ 220 billion by 2025. Innovative products: Indian consumers are highly adaptable to new and innovative products. For instance there has been an easy acceptance of men’s fairness creams, flavoured yoghurt, cuppa mania noodles, gel based facial bleach, drinking yogurt, sugar free Chyawanprash. Premium products: With the rise in disposable incomes, mid and high-income consumers in urban areas have shifted their purchase trend from essential to premium products. Premium brands are manufacturing smaller packs of premium products. Example: Dove soap is available in 50g packaging. Nestle is looking to expand its portfolio in premium durables cereals, pet care, coffee, and skin health accessing the potential in India. Sourcing base: Indian and multinational FMCG players can leverage India as a strategic sourcing hub for cost-competitive product development and manufacturing to cater to international markets. Penetration: Low penetration levels offer room for growth across consumption categories. Major players are focusing on rural markets to increase their penetration in those areas.

Online FMCG: It is estimated that 40 per cent of all FMCG purchases in India will be online by 2020, thereby making it a US$ 5-6 billion business opportunity.


sec)

9

Page


Investment Rationale Leadership position in various products in the domestic and international FMCG markets bring competitive benefits GCPL continues to remain the market leader in the household insecticide category with more than 50% market share. Innovation and strong brands like ‘Good Knight’ and ‘Hit’ have resulted in higher than industry average growth rate and steady traction in its market share in this category. GCPL continues to be the second largest toilet soaps player in the highly penetrated domestic soaps market. The company markets its soaps under the two popular brands, ‘Godrej No. 1’ and ‘Cinthol’. Company has focused on micro marketing initiatives with regional launches. GCPL continues to be the market leader in the hair colour segment and has strong product offerings across product formats (powder and crème), targeting various price points. The segment also comprises the premium hair salon business, BBlunt, which offers a range of premium hair care and styling products. Furthermore, GCPL also enjoys market leading positions in various categories such as HI (Household Insecticides), air fresheners and wet wipes in Indonesia and ethnic hair colours and hair extensions (dry hair care) in Sub Saharan Africa. This is supported by its portfolio of strong brands. Coupled with constant innovations and brand repositioning, this has resulted in steady traction in its market share in these key categories and geographies. Accelerating innovation and building powerful brands help to generate additional growth GCPL is ramping up its innovation pipeline and finding new and exciting ways to delight consumers with differentiated, superior quality and affordable products. Apart from this, Company is building capabilities in Research & Development and Design, and also collaborating with different global partners to tap into emerging, cutting-edge technologies. Through advanced analytics and digital, GCPL is transforming its approach to marketing, go-to-market and supply chain, and becoming more future-ready. Year 2019 has been an active year on innovations, with multiple new products launched across categories. Godrej protekt Mr. Magic hand wash is the first ever powder-to-liquid hand wash, designed to be more environmentally sustainable. GCPL extended ‘Cinthol’ portfolio to foray into the growing male grooming category, with a range of multi-benefit products for the face, body, hair and beard. Through Godrej Nupur Natural Henna Based Hair Colour, GCPL is extending a strong henna play to the herbal-based powder hair colour segment. In Goodknight, GCPL introduced Power Chip, an electric solution infused with unique gel technology, a higher efficacy liquid vapouriser and 100 percent natural mosquito repellent incense sticks. GCPL’s number of new products launched annually in the last 2 years has doubled and new products launched in last 5 years account for over 20% of India Business. 17 new products were launched over the last 5 years in India. Innovations rates in India and Indonesia are 30% and 50% higher, respectively, than the last year. The company is focusing on accelerating innovation and renovation. The new products it had launched from 2013 to 2018 had contributed to 20% of its global growth and 30% of growth in India.

Apart from this, GCPL has signed Anushka Sharma as the new Brand Ambassador of its hair colour brand ‘Godrej Expert Rich Crème’. This development is in line with the company’s aims to make the brand more contemporary and relevant among young consumers.

10

Page

Equity Research Pick of the Week – Retail Research Focusing on rural market Leading players of consumer products have a strong distribution network in rural India; they also stand to gain from the contribution of technological advances like internet and e-commerce to better logistics. Godrej is focusing on rural market for household insecticides segment. At present, Godrej get 25% of the household insecticides sales from rural areas while on an overall basis about 27% of its sales comes from rural areas. This compares with 35-45% in the case of other FMCG companies. Rural FMCG market size is expected to touch US$ 220 billion by 2025. Low penetration levels in rural market offers room for growth. Disposable income in rural India has increased due to various initiatives of the Govt incluidng the direct cash transfer scheme. To expand its rural presence, Company is engaged in product innovation and drafting strategies for rural distribution network.

Company expects sales growth in coming quarters led by gradual improvement in consumer demand

GCPL witnessed relatively mixed demand across its geographies in Q3FY20. In India, demand continued to be challenging, impacted by a general consumption slowdown. Despite weak demand conditions, it recorded marginally higher than mid single digit volume growth. The uplift in volume growth was led by gradual recovery in household insecticides, new product launches, effective marketing campaigns and tactical consumer offers. GCPL looks forward to a gradual improvement in consumer demand in the quarters ahead driven by good monsoon and government stimuli.

GCPL recorded close to high single digit constant currency sales growth in Q3FY20,led by an improving demand environment in home and personal care space In Indonesia, driven by new product launches and gradual expansion of general trade, distribution (Project Rise). There was also good recovery in GAUM (Godrej Africa, USA, Middle East) with higher than mid single digit constant currency sales growth, thus reversing the trend of the past few quarters. It continues to drive scale up of wet hair care and the relaunch of Darling brand in dry hair category along with expansion in distribution to deliver sales growth going forward.

In Indonesia, the mosquito-repellent maker recorded high-single digit sales growth. The growth was mainly aided by an improving demand environment in home and personal care space.

Apart from this, the performance in Latin America is expected to be strong in constant currency terms. Successful integration of acquisitions lead by geographic presence and diversified product portfolio Over the past five years, GCPL has undertaken several overseas acquisitions to build its presence in key emerging markets outside India, with focus on Asia, Africa and Latin America. GCPL’s inorganic acquisitions of Sara Lee’s share in the erstwhile Godrej Sara Lee Limited in India, ‘Megasari Group’ in Indonesia, stakes in ‘Darling Group’ operations in South Africa, Mozambique, Nigeria, and Kenya, ‘Rapidol’ and ‘Frika’ in South Africa, ‘Tura’ in Nigeria, ‘Issue Group’, ‘Argencos’ and ‘Cosmetica Nacional’ in Latin America, have all helped it in extracting synergies in terms of supply chain efficiencies, product cross pollination and stronger distribution network, besides diversifying its product portfolio and geographical reach. The firm focusses on building a presence in emerging markets in Asia, Africa and Latin America.

In August last year, GCPL sold its UK-business to the London-based private equity firm JZ International for £34 million (about $44 million or Rs 313 crore). Similarly, in July last year, GCPL sold its diaper brand, Snuggy, to Nobel Hygiene Pvt. Ltd for an undisclosed sum of money. It originally acquired Snuggy from Shogun Diapers in 2003.

On 20 September, 2019, GCPL has increased its stake from 90% to 95% in two Mauritius-based units - Godrej West Africa Holdings Ltd (GWAHL) and Darling Trading Company Ltd (DTCL). GCPL paid $13.80 million (approximately Rs 97.89cr) for GWAHL, with a further $7 million (around Rs 49.65cr) for increasing its stake in DTCL. GWAHL, which is an investment holding company that was incorporated in February 2014, holds 100% in South Africa-based Subinite Pty. Ltd and Mozambique-based Weave Mozambique LTDA, both of which are in the ethnic care business. GWAHL also fully owns Weave IP Holdings Mauritius Ltd. DTCL, which is an investment holding company that was incorporated in January 2015, holds a 100% stake Dubai-based Godrej Consumer Products International FZCO, which runs hair fibers business.

11

Page

Equity Research Pick of the Week – Retail Research Sound Financial Profile GCPL’s financial profile is characterised by healthy profitability, strong cash accruals, moderate gearing and comfortable debt coverage indicators.

GCPL reported ~5% revenue growth and ~44% profit growth in FY19. GCPL’s operating profitability remained healthy with an EBITDA margin of 20.4% in FY19. GCPL reported 3% revenue de-growth in H1FY20 indicating low value growth on account of lower prices and consumer offers. Company reported EBITDA margin at 21.7% vs. 18.3% in H1FY19, helped by effective cost management and new launches.

Company continues to retain its Debt to Equity to 0.4x in FY19 vs. 0.6x in FY17, lower interest cost is key factor for its better profit and PAT margin compare to its peers. The NP margin has increased in last couple of years driven by cost savings initiatives initiated across markets. The PAT margin is more than 10% and mostly stable which is a healthy indicator of pricing power the company enjoys.

Its return ratio is also comparatively better than its peers, RoNW stood at 29.4% in FY19 and we expect to see at range of 21-22% in next two years.

As on 31st March 2019, total debtors stood at Rs 1,293cr (12.5% of sales) vs. Rs 1,245.5cr (12.6% of sales) in FY18. Debtors Sales Outstanding (DSO) is unchanged at 46 days.

GCPL’s dividend yield stood at 1.4% in FY19, paid dividend Rs 10 per share to shareholders. We expect GCPL could pay dividend Re 8 and Rs 9 per share in FY20E and FY21E respectively.

In the absence of any major expansion plans, GCPL’s healthy cash accruals and scheduled debt repayments is expected to result in an improvement in its financial profile, going forward.

Margins-% Return Ratio-%


12

Page


Concerns

Competition Competition from recognised companies: FMCG industry has intense competition with a presence of various MNCs as well as domestic players. GCPL faces competition from companies like HUL, ITC, Marico, Dabur, Patanjali etc. Intense competition also gives rise to aggressive price competition which is a threat to the whole industry. Competition from unbranded products: Indian rural market still has the abundance of unbranded products available - for instance cooking oil and washing soap etc. The presence of such products affects the organized industry’s growth prospects. FDI in retail: The demand for FDI in retail can affect the company’s position in the market as it will allow the more international companies to enter the Indian market. Macro-economic challenges faced by units in different locations FY19 was a challenging year for Africa, Middle East and US regions. The overall business grew by 5 per cent in constant currency terms. Company faced slowdown in South Africa due to macro-economic challenges. Argentina business was mired in unprecedented macroeconomic challenges this year, with the highest ever currency devaluation in recent years driven by hyper-inflation and the economy shrinking. Chile business also faced strong macro headwinds with heightened competitive intensity and the category in some of its key-channels de-growing.

A key regional player in West Africa, Nigeria accounts for about half of West Africa’s population with approximately 202 million people and one of the largest populations of youth in the world. Since 2015, economic growth remains muted. Growth averaged 1.9% in 2018 and remained stable at 2% in the first half of 2019. Domestic demand remains constrained by stagnating private consumption in the context of high inflation (11% in the first half of 2019). Currency fluctuations GCPL’s ~45% revenue comes from outside India. GCPL is exposed to forex and translation risks. Fluctuation in currencies of key international markets including Africa and Indonesia will affect growth and profitability of international business. Fluctuations in input prices GCPL’s soaps business is exposed to adverse fluctuation in international palm oil prices (key raw material). Nonetheless, increasing contribution from household insecticides and hair colour segments mitigates this risk to some extent.


sec)

13

Page

Equity Research Pick of the Week – Retail Research Some of the acquisitions in the past couldn’t perform well The company sold its UK subsidiary in 2018. Though the company has hinted that it will be going slow on acquisitions, any non-strategic acquisition by the company could impact its margins and balance sheet ratios. A slowdown in rural demand due to lower government spending or monsoon failure.

Household insecticides as a category shows uneven growth pattern from quarter to quarter.

Peer Comparison Company-Cr (TTM) Mkt Cap Revenue EBITDA PAT EPS BVPS RoE-% D/E-(x) P/E

Godrej CP 75446 10155 2207 2180 21.3 74.2 28.8% 0.3 34.6

HUL 423092 40511 9699 6617 30.6 37.1 82.5% 0.0 63.9

EMAMI 13777 2759 746 329 7.25 42.6 17.0% 0.1 41.8

DABUR 82487 8813 1850 1503 8.50 34.8 24.5% 0.1 54.8

MARICO 43001 7465 1445 1208 9.33 27.4 34.1% 0.1 35.7

View and valuation GCPL is one of the marquee companies of the Godrej Group, a large and established business house in the country. GCPL has strong brand equity. In household insecticides, GCPL is the leader in India and Indonesia and is expanding its footprint in Africa. GCPL is the leader in serving the hair care needs of women of African descent, the number one player in hair colour in India and Sub-Saharan Africa, and among the leading players in Latin America. Apart from this, Company enjoys number two position in soaps in India, is the number one player in air fresheners in India and Indonesia, and a leader in wet tissues in Indonesia. Over the past five years, GCPL has undertaken several overseas acquisitions to build its presence in key emerging markets outside India, with focus on Asia, Africa and Latin America. The company is focusing on improving its volume growth through innovations, enhancing the distribution reach and adequate brand building and promotional activities in the near term. Benign input prices would help the company clock better margins in the near term. GCPL has suggested sharp improvement ahead in the struggling parts of the business and sustained strength in the parts that did well. India and Indonesia volume growth has picked pace lately. Long term demand growth concerns in Household Insecticides and macro issues in Nigeria are key concerns faced currently by GCPL. We feel investors could buy the stock at the CMP and add on dips to Rs 664-669 band (33.5x FY22E EPS) for sequential targets of Rs 816 (41.0x FY22E EPS) and Rs 876 (44.0x FY22E EPS) in 4 quarters. At CMP of Rs 738 the stock quotes at 37.1x FY22E EPS.


sec)

14

Page


Particulars (Rs Cr) Q2FY20 Q2FY19 YoY (%) Q1FY20 QoQ (%) H2FY20 H2FY19 YoY (%)

Total Income from Operation 2630.2 2659.2 -1.1% 2348.8 12.0% 4979.0 5136.3 -3.1%

Raw Material Consumed 1092.7 1127.1 -3.0% 989.9 10.4% 2082.7 2101.7 -0.9%

Stock Adjustment -38.7 63.5 -161.0% -46.9 17.3% -85.6 37.7 -327.1%

Purchase of Finished Goods 87.8 65.2 34.8% 64.0 37.3% 151.8 211.0 -28.1%

Employee Expenses 266.5 256.9 3.7% 265.3 0.5% 531.8 547.2 -2.8%

Selling & Administrative Expenses 213.3 255.9 -16.6% 192.9 10.6% 406.2 464.8 -12.6%

Loss on Forex Transaction 4.6 -0.3 1590.3% 3.3 40.0% 7.9 4.6 72.5%

Other Expenses 432.0 404.2 6.9% 424.7 1.7% 856.7 844.8 1.4%

Total Expenditure 2058.3 2172.4 -5.3% 1893.2 8.7% 3951.5 4211.7 -6.2%

EBITDA 571.9 486.8 17.5% 455.6 25.5% 1027.5 924.6 11.1%

Depreciation 47.7 42.6 12.1% 47.3 0.8% 95.1 84.7 12.2%

EBIT 524.2 444.3 18.0% 408.3 28.4% 932.4 839.9 11.0%

Other Income 26.6 285.8 -90.7% 21.8 21.6% 48.4 317.0 -84.7%

Interest 53.1 61.2 -13.2% 55.1 -3.6% 108.2 109.0 -0.7%

PBT 497.6 668.9 -25.6% 375.0 32.7% 872.7 1047.9 -16.7%

Tax Paid 80.5 91.1 -11.7% -32.6 347.1% 47.9 65.2 -26.5%

Reported Profit After Tax 417.1 577.7 -27.8% 407.6 2.3% 824.7 982.8 -16.1%

Minority Interest(MI) After NP 0.3 0.0 - 0.0 - 0.3 0.0 -

Profit/Loss of Associate Company 0.0 0.0 - 0.0 - 0.0 0.0 -

Net Profit after MI & P/L Asso.Co. 416.8 577.7 -27.9% 407.6 2.3% 824.4 982.8 -16.1%

Extra-ordinary Items(eOI) 3.5 259.7 -98.6% 0.2 1509.1% 3.8 254.8 -98.5%

Adjusted Profit After EOI 413.3 318.0 30.0% 407.4 1.4% 820.7 728.0 12.7%

EPS (Adj) (Unit Curr.) 4.0 5.7 -28.3% 4.0 1.5% 8.0 9.6 -16.3%

s in Cr Q2FY20 Q1FY20 Q4FY19 Q3FY19 Q2FY19 Q1FY19 Q4FY18 Q3FY18

REVENUE

India 1521.3 1315.4 1356.1 1505.6 1507.6 1310.0 1369.8 1425.0

Indonesia 426.2 372.1 412.5 395.5 363.9 353.0 345.6 364.4

Africa 591.2 562.3 580.5 680.2 629.6 565.7 516.6 598.6

Others 127.7 130.8 134.9 166.5 190.6 278.2 326.2 264.3

Less : Inter Segment Revenues 36.2 31.8 27.8 26.0 32.6 29.7 29.3 22.0

Total Segment Revenue 2348.8 2348.8 2456.1 2721.9 2659.2 2476.0 2528.9 2630.3

PROFIT

India 401.6 307.3 403.0 443.4 397.8 293.8 395.4 397.7

Indonesia 105.7 87.7 131.9 92.2 88.2 83.8 96.8 99.8

Africa 50.4 46.6 45.5 71.3 -15.0 53.8 46.1 64.8

Others 3.7 -1.7 -2.8 -8.1 5.5 7.5 51.2 31.3

Profit/Loss Before Interest and Tax 561.4 439.9 577.7 598.8 476.4 438.9 589.5 593.6

Quarterly Financials: Income Statement- Cons

Segment wise Performance

15

Page


Particulars, Rs in Cr FY18 FY19 FY20E FY21E FY22E Total Income from Operations 9847.4 10314.3 10765.4 11542.6 12482.8 Raw Material Consumed 3646.2 4062.4 4362.8 4628.5 4969.6 Stock Adjustment 56.0 154.5 -23.5 51.6 49.6 Purchase of Finished Goods 572.1 337.4 347.1 372.3 409.0 Employee Expenses 1057.4 1090.9 1121.4 1203.0 1295.1 Selling & Administrative Expenses 810.3 839.3 865.1 933.7 1003.8 Loss on Forex Transaction 29.1 13.8 8.0 7.4 7.4 Other Expenses 1609.2 1716.5 1842.3 1901.8 2051.0 Total Expenditure 7780.3 8214.8 8523.2 9098.3 9785.4 EBITDA 2067.1 2099.6 2242.3 2444.3 2697.3 Depreciation 155.7 170.0 196.3 199.1 196.4 EBIT 1911.4 1929.6 2046.0 2245.1 2500.9 Other Income 288.2 380.0 90.8 97.4 101.6 Interest 160.7 224.3 208.2 219.4 200.5 PBT 2038.9 2085.3 1928.6 2123.2 2402.0 Tax Paid 404.7 -256.2 298.9 354.6 413.1 Reported Profit After Tax 1634.2 2341.5 1629.7 1768.6 1988.9 Minority Interest After NP 0.0 0.0 0.0 0.0 0.0 Profit/Loss of Associate Company 0.0 0.0 0.0 0.0 0.0

Net Profit after Minority Interest & P/L Asso.Co. 1634.2 2341.5 1629.7 1768.6 1988.9

Extra-ordinary Items 143.9 202.0 17.0 -38.0 -45.0

Adjusted Profit After Extra-ordinary item 1490.3 2139.6 1612.7 1806.6 2033.9

EPS (Adj) (Unit Curr.) 14.6 20.9 15.8 17.7 19.9

Particulars, Rs in Cr FY18 FY19 FY20E FY21E FY22E

EBT 1859.3 1832.8 1928.6 2123.2 2402.0

Depreciation and Amortization 155.7 170.0 196.3 199.1 196.4

Interest /Dividend paid 160.7 224.3 208.2 219.4 200.5

Other Adjustment -44.1 -63.7 -90.8 -97.4 -101.6

(Inc)/Dec in working Capital -15.5 0.6 -149.8 -470.4 -176.9

Tax Paid -392.8 -435.1 -298.9 -354.6 -413.1

CF from Operating Activities 1723.4 1728.9 1793.5 1619.3 2107.2

Capital expenditure -311.5 -633.1 -325.0 -275.0 -265.0

Proceeds from sale of fixed assets 0.0 278.2 0.0 0.0 0.0

(Purchase)/Sale of Investment -94.8 514.3 -72.2 -166.1 -215.9

Others 66.5 92.1 39.3 70.0 91.5

CF from Investing Activities -339.8 251.6 -357.9 -371.1 -389.4

Financials: Income Statement

Cash Flow


16

Page


Inc/(Dec) in Share capital -0.7 -0.7 0.0 0.0 0.0

Inc/(Dec) in Debt -487.6 -344.7 -367.5 200.0 -170.0

Dividend and Interest Paid -895.8 -1693.3 -1189.6 -1323.5 -1427.3

CF from Financing Activities -1384.0 -2038.7 -1557.1 -1123.5 -1597.3

Net Cash Flow -0.5 -58.3 -121.5 124.7 120.5

Opening Balance 895.1 894.6 836.2 714.7 839.5

Closing Balance 894.6 836.2 714.7 839.5 960.0

Particulars, Rs in cr FY18 FY19 FY20E FY21E FY22E EQUITY & LIABILITIES Share Capital 68.1 102.2 102.2 102.2 102.2 Reserves & Surplus 6190.2 7164.7 7796.0 8498.4 9305.6 Shareholders Fund 6258.3 7266.9 7898.2 8600.7 9407.8 Minority Interest 0.0 0.0 0.0 0.0 0.0 Long Term Borrowings 2380.3 2604.8 2354.8 2504.8 2404.8 Deferred Tax Liabilities(Net) 294.7 76.5 80.4 84.4 88.6 Other Long Term Liabilities 756.3 221.8 232.9 244.6 256.8 Long Term Provisions 98.2 108.3 113.7 102.3 107.4 Total Non-Current Liabilities 3529.5 3011.4 2781.7 2936.0 2857.6 Short Term Borrowings 154.3 270.9 153.4 203.4 133.4 Trade Payables 2353.1 2540.0 2507.0 2624.8 2804.3 Other Current Liabilities 1619.3 1030.0 1081.5 811.1 730.0 Short Term Provisions 49.3 50.9 48.3 50.7 53.3 Total Current Liabilities 4176.0 3891.8 3790.3 3690.1 3721.1 TOTAL EQUITY & LIABILITIES 13963.8 14170.1 14470.2 15226.7 15986.4 ASSETS

Fixed Assets(incl. Capital Work in Progress) 8398.9 8722.3 8851.1 8926.9 8995.5

Non-Current Investments 141.5 34.7 38.1 42.0 46.1 Deferred Tax Asset(Net) 100.0 549.3 659.2 725.1 797.6 Long Term Loans & Advances 18.9 18.8 20.6 22.7 25.0 Other Non-Current Assets 135.7 156.6 140.9 162.1 145.9 Total Non-Current Assets 8795.0 9481.7 9710.0 9878.8 10010.1 Current Investments 855.8 481.3 553.5 719.6 935.4 Inventories 1577.7 1558.6 1681.2 1834.2 1983.6 Trade Receivables 1245.5 1292.9 1327.2 1423.1 1539.0 Cash & Cash Equivalents 960.2 894.7 714.7 839.5 960.0 Short Term Loans & Advances 2.9 3.7 3.5 3.7 3.9 Other Current Assets 526.7 457.2 480.0 528.0 554.4 Total Current Assets 5168.8 4688.4 4760.2 5348.0 5976.3 TOTAL ASSETS 13963.8 14170.1 14470.2 15226.7 15986.4

Balance Sheet

17

Page


Particulars, Rs in Cr FY18 FY19 FY20E FY21E FY22E No of Equity Shares-cr 3.2 3.2 3.2 3.2 3.2 Enterprise Value-cr 1201.9 1246.5 1338.8 1293.3 1276.5

EPS 34.9 36.1 32.3 43.3 46.9 Cash EPS (PAT + Depreciation) 40.9 42.1 41.2 53 57.3 Book Value Per Share(Rs.) 144.2 177.2 205.9 245.2 287.9

PE(x) 10.4 10 11.2 8.4 7.7 P/BV (x) 2.5 2 1.8 1.5 1.3 Mcap/Sales(x) 1.4 1.2 1.2 1 0.9 EV/EBITDA 6.3 6.4 7.1 5.5 5

EBITDAM (%) 22.0% 20.5% 19.7% 19.3% 19.1% EBITM (%) 19.8% 18.4% 16.7% 16.7% 16.5% PATM (%) 13.1% 12.4% 11.0% 11.4% 11.4%

ROCE (%) 28.6% 23.3% 17.5% 20.0% 19.0% RONW (%) 24.2% 20.4% 15.7% 17.6% 16.3% Payout (%) 8.9% 9.3% 11.1% 9.0% 9.0% Div Yield(%) 0.7% 0.8% 0.8% 0.9% 1.0%

Current Ratio 1.4 1.5 1.9 1.9 2.1 Quick Ratio 1 0.9 1.3 1.2 1.4

Debt-Equity 0.3 0.3 0.4 0.3 0.3

Key Ratios

18

Page


One Year Daily Closing Price Chart


19

Page


Fundamental Research Analyst: Abdul Karim ([email protected])

Disclosure: I, Abdul Karim, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate does not have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in any manner. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.

HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600

HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA Corporate Agent License No.: CA0062; SEBI Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN - U67120MH2000PLC152193

Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

This report has been prepared based on Technical and/or Derivative Analysis both of which use unique tools to recommend buys/sells as well as to estimate targets. The targets arrived at using these methods of analysis may therefore differ from the targets arrived at by using fundamental analysis on the same company whether by HDFC Securities Ltd. or otherwise.

This report is intended for non-Institutional Clients only. The views and opinions expressed in this report may at times be contrary to or not in consonance with those of Institutional Research or PCG Research teams of HDFC Securities Ltd. and/or may have different time horizons. Mutual Fund Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.



date: 13th january 2020 - hdfc securities

Documents