institutional equity research godrej consumer (gcpl in...

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%


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 (%)


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



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


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.



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



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



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



MANAGEMENT

Vineet Bhatnagar (Managing Director)

Kinshuk Bharti Tiwari (Head – Institutional Equity)

Jignesh Shah (Head – Equity Derivatives)

REGIONAL MEMBER COMPANIES

INDIA

PhillipCapital (India) Private Limited

www.phillipcapital.in

SINGAPORE

Phillip Securities Pte Ltd

www.phillip.com.sg

JAPAN

Phillip Securities Japan, Ltd

www.phillip.co.jp

THAILAND

Phillip Securities (Thailand) Public Co. Ltd.

www.phillip.co.th

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

AUSTRALIA

PhillipCapital Australia

www.phillipcapital.com.au

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


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


Neeraj Chadawar

Telecom


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

http://www.phillipcapital.in/

http://www.phillip.com.sg/

http://www.phillip.co.jp/

http://www.phillip.co.th/

http://www.poems.com.my/

http://www.phillip.co.id/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.phillip.com.hk/

http://www.phillip.com.cn/

http://www.kingandshaxson.com/

http://www.ashaphillip.net/home.htm



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