Godrej Consumer Products Ltd: Integration at its best

India Infoline News Service | Mumbai |

GCPL is a major beneficiary as it dominates the non-coil segment which is growing faster than the market.

CMP Rs695, Target Rs792, Upside 14%
 

Godrej Consumer (GCPL) has transformed itself from a company selling mainly soaps to an emerging-market play on high growth categories like home insecticides, hair extensions and hair colours. Till FY09, the company operated only in two categories - soaps and hair colours. GCPL’s domestic business mix significantly improved post the merger of the house insecticides business of Sara Lee in FY10. The Insecticide business remains the most value-accretive part of the domestic business, offering high growth, stable margins and a rational competitive environment. The category is witnessing major premiumisation with the high-value electric and aerosol segments outpacing the low-priced coil segment. GCPL is a major beneficiary as it dominates the non-coil segment which is growing faster than the market.


GCPL’s 3x3 strategy for focusing on the international market - presence in emerging markets in Asia, Africa and Latin America through three core categories – personal wash, hair care and home care is delivering the desired results. In FY10, the international business mix was skewed towards developed markets, mainly the UK. GCPL now has strong leadership positions in insecticides in Indonesia, hair colours in South America and hair extensions in Africa. GCPL has acquired market-leading brands in emerging-markets, most of which operate in categories that do not face tough competition from global players. We expect GCPL to use its expanded distribution footprint to introduce other key products in its portfolio in these geographies.


With strong growth momentum in both domestic and international businesses, successful acquisitions, GCPL management is confident of achieving 26% revenue CAGR over the next 10 years. Around 10% growth is envisaged through the inorganic route, which translates into a 10x jump in revenues by 2021. GCPL’s successful acquisition integration in the past makes us confident of the management’s ability to derive synergy benefits. We expect GCPL to witness revenue/earnings CAGR of ~27/35% respectively over FY12-14. Maintain Buy with a 9-month revised target price of Rs792.


Financial summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Revenues 36,936 48,662 63,150 78,622
Yoy growth (%)   81.0   31.7    29.8   24.5
Operating profit 6,531 8,554 11,114 13,877
OPM (%) 17.7 17.6 17.6 17.7
Reported PAT 5,147 7,267 7,670 9,631
yoy growth (%)   51.6   41.2   5.5   25.6
EPS (Rs)   14.6   15.5   22.5   28.3
P/E (x)   47.5   44.9   30.8   24.6
EV/EBITDA (x)   36.3   28.7   21.6   16.9
Debt/Equity (x)   0.9   0.6   0.4   0.2
RoE (%) 35.3 23.2 24.6 25.3
RoCE (%) 31.2 21.9 23.4 26.8
Source: Company, India Infoline Research
BSE 988.10 [8.15] ([0.82]%)
NSE 986.00 [10.25] ([1.03]%)

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