Godrej Consumer Products (Q1 FY13)

India Infoline News Service | Mumbai |

Godrej Consumer Products (Q1 FY13)

CMP Rs617, Target price Rs685, Upside 11% 
  • GCPL continued its strong growth momentum during Q1 FY13 by recording 39.2% yoy growth in revenues at Rs13.9bn – above our expectations of Rs13bn. The growth was primarily led by a healthy 24% yoy growth in the domestic business at ~Rs8bn (contributes ~57% to consolidated revenues), 40% yoy growth in Megasari and better than expected contribution from acquisitions - Darling group and Cosmetica National.
  • The domestic FMCG business revenues were driven by a strong 42%+ yoy growth in soaps and 27% yoy growth in household insecticides (against industry growth of 8%) segment. The soaps segment outperformed the industry (mere 5% volume growth) by registering strong 24%+ volume growth. The growth was primarily led by new product launches, market share gains from regional players coupled with distribution expansion. Hair colour segment though witnessed mere 5% yoy revenue growth during the quarter. With new media campaign on Godrej Powder hair Colour, the growth is expected to pick up in the coming quarters.
Strong growth across all businesses
Business % yoy
Domestic business 24%
Insecticides 27%
Soaps 42%+ (24%+ volume growth)
Hair Colours 5%
   
International business 68%
Indonesia 40%+
Africa 236%+
Latin America 94%
UK 17%
Source: Company, India Infoline Research 
  • International business reported strong 68% yoy increase in revenues at ~Rs6bn primarily driven by 40% yoy growth (comprising ~25% yoy constant currency growth) registered in Megasari in Indonesia (at Rs2.7bn, contributing 45% to revenues) and operating margins of 18% - an increase of 140bps yoy. The strong revenue growth was mainly on back of distribution expansion and healthy performance of new product launches.
  • Africa business (contributing 24% to international business revenues) clocked revenues worth ~Rs1.4bn and OPM of 19% - an increase of 850bps yoy. GCPL has received tax benefits for the Nigeria and Mozambique business (zero tax rate for next 5 years), which will result in a lower consolidated tax rate by 50-100bps in FY13E.
  • Latin American business of GCPL, contributing 18% to international business revenues recorded strong 94%+ yoy revenue growth at Rs1.1bn (constant currency growth of ~78%) and operating margins of 3%, 140bps yoy expansion (without including one time exceptional cost related to restructuring of two sales force into one (Rs50mn) and acquisition led stamp duty charges (Rs10mn).
  • The European business contributing 12% to international business revenues recorded 17% yoy growth at Rs730mn and operating margins of 13% (down 100bps) during Q1 FY13. The growth could have been even better but UK witnessed one of the wettest summers in decades, thus affecting sales of the sun care category.
  • Operating margins for the quarter remained flat at 14.3% mainly due to sharp 130bps increase in staff cost. A 60bps/70bps decline in raw material and advertising cost respectively cushioned margins. Pre-tax profit recorded 40% yoy growth at Rs1.8bn driven by strong topline growth. Adjusted profit registered a strong 47.8% yoy growth at Rs1.5bn mainly due to 61% yoy decline in tax (effective tax rate for Q1 FY13 was lower at 6.2% against 22.3% in Q1 FY12 as GCPL has received tax benefits for the Nigeria and Mozambique business - zero tax rate for next 5 years). Adjusting for the forex loss of Rs176mn reported PAT was at Rs1.3bn (Q1 FY12 includes extraordinary income of ~Rs1.4bn)
Cost analysis
As a % of net sales Q1 FY13  Q1 FY12 bps yoy Q4 FY12 bps qoq
Material cost 40.6 45.5 (492) 38.3 222
Purchase of FG 7.3 3.0 428 8.1 (83)
Personnel cost 9.3 8.0 128 9.1 20
Advertising cost 11.0 11.7 (72) 8.3 274
Other overheads 17.6 17.5 7 17.4 10
Total costs   85.7 85.7 (1) 81.2 443

Source: Company, India Infoline Research 

  • GCPL is transforming itself in to an emerging-market play on high growth categories such as home insecticides, hair extensions and hair colours. 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. Maintain BUY with a revised 9-mth price target of Rs685 (earlier Rs602).

Results table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 13,886 9,978 39.2 13,230 5.0
Material cost (5,633) (4,539) 24.1 (5,073) 11.0
Purchase of FG (1,009) (298) 238.9 (1,071) (5.8)
Personnel cost (1,289) (799) 61.4 (1,202) 7.3
Advertising cost (1,531) (1,172) 30.6 (1,096) 39.6
Other overheads (2,437) (1,744) 39.7 (2,308) 5.6
Operating profit 1,988 1,427 39.3 2,481 (19.9)
OPM (%) 14.3 14.3 1 bps 18.8 (443) bps
Depreciation (199) (159) 25.0 (155) 28.1
Interest (164) (111) 48.3 (194) (15.2)
Other income 181 132 37.0 203 (10.6)
PBT 1,807 1,290 40.0 2,335 (22.6)
Tax (112) (288) (61.0) (601) (81.3)
Effective tax rate (%) 6.2 22.3 - 25.7 -
Other provisions / minority etc (213)
BSE 1,000.00 6 (0.60%)
NSE 996.25 4.60 (0.46%)

***Note: This is a NSE Chart

 

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