GCPL continued its strong growth momentum during Q2 FY13 by recording 34.5% yoy growth in revenues at Rs16bn â€“ in line with our expectations. The growth was primarily led by a healthy 19% yoy growth in the domestic business at ~Rs9.2bn (contributes ~57% to consolidated revenues) and 37%+ yoy growth in Megasari.
The domestic FMCG business revenues were driven by a strong 24% yoy growth in soaps and 20% yoy growth in household insecticides (more than 1.5x of the category) segment. The soaps segment registered mere 6% volume growth mainly due to lower primary sales of Cinthol (due to the ensuing re-launch) as well as a high base of 20% volume growth in Q2 FY12. The company has re-launched the entire Cinthol range and targets a more premium and a wider positioning across personal care with Cinthol. Hair colour segment registered a modest 10% yoy revenue growth. GCPL has launched Godrej Expert crÃ¨me hair colours in single serve packs at an aggressive price point by leveraging its Latin America technology. It has also rolled out its air freshener brand â€˜aerâ€™ across markets during the quarter.
|Insecticides||20% (1.5x+ the category)|
|Soaps||24%+ (6% volume growth)|
International business reported strong 63% yoy increase in revenues at ~Rs6.8bn mainly on back of distribution expansion and healthy performance of new product launches. Operating margins though declined by 290bps due to a high base in Africa and increased brand investments across geographies. Megasari in Indonesia (contributing ~46% to revenues) registered 37%+ yoy growth with constant currency growth of 26% yoy at ~Rs3.2bn. Operating margins however declined by 140bps to 19% due higher brand investments.
Africa business (contributing ~24% to international business revenues) registered 152% yoy at ~Rs1.6bn led by the consolidation of the Darling business. OPM was lower at 16% compared to 26% registered in Q2 FY13 and are not strictly comparable as the base quarter had lower costs integrated on the Darling acquisition. GCPL expects sustainable margins of ~17-19% in Africa. With the phase II of the Darling acquisition now being integrated, ~20% additional revenues of Darling group will come into GCPLâ€™s books taking the total up to 65% in Q3 FY13. GCPL has started its insecticide rollout in Africa, starting with the Rs5bn Nigeria market. We believe this is a big opportunity and a strong growth driver for GCPL.
Latin American business of GCPL, contributing ~19% to international business revenues recorded strong 93% yoy revenue growth at ~Rs1.3bn (constant currency growth of ~84%) aided by the consolidation of the Cosmetica acquisition. Operating margins were low at 4% due to seasonality as well as increased brand investments on 5 new launches in the geography. The European business contributing ~10% to international business revenues recorded 29% yoy growth at Rs680mn and operating margins of 9% during Q2 FY13.
Operating margins for the quarter contracted by 210bps to 15.3% mainly due to sharp 150bps increase in staff cost. Adjusted net profit recorded 15.1% yoy growth at ~Rs1.7bn (below our expectation of Rs2bn) driven by strong topline growth and higher other income. Adjusting for the forex loss of Rs76mn (against Rs173mn in Q2 FY12), reported PAT increased by 24.7% yoy to Rs1.6bn.
|As a % of net sales||Q2 FY13||Q2 FY12||bps yoy||Q1 FY13||bps qoq|
|Purchase of FG||7.3||9.8||(248)||7.3||5|
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. GCPLâ€™s successful acquisition integration in the past makes us confident of the managementâ€™s ability to derive synergy benefits. Maintain BUY with a 9-mth price target of Rs792.
|(Rs m)||Q2 FY13||Q2 FY12||% yoy||Q1 FY13||% qoq|
|Purchase of FG||(1,167)||(1,161)||0.5||(1,009)||15.7|
|OPM (%)||15.3||17.4||(214) bps||14.3||97 bps|
|Effective tax rate (%)||21.3||22.6||-||6.2||-|
|Other provisions / minority etc||
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