Godrej Consumer Products (Q2 FY14)

India Infoline News Service | Mumbai |

International business reported 33% yoy growth in revenues at Rs9.4bn driven by strong growth in African and European businesses, aided by inorganic growth. Organic constant currency growth for the quarter stood at 14% yoy.

CMP Rs854, Target Rs943, Upside 10.4%
  • GCPL matched our expectations by recording 22.5% yoy growth in revenues at Rs19.6bn during Q2 FY14. GCPL registered healthy 14% yoy revenue growth (13% yoy volume growth) in the domestic FMCG business. The growth was primarily driven by strong ~24-25% yoy growth in hair care (led by strong growth in Hair Crème and Godrej Expert Advance hair colour) and household insecticides segments. However, soaps segment reported muted revenue growth of 3% yoy against 13% yoy growth reported in Q1 FY14 due to relatively slower ramp up of a key consumer offer and political turmoil in Andhra Pradesh. Adjusting for discontinuation of contract manufacturing sales, domestic FMCG business growth stood at 17% yoy.

Strong growth across all businesses
Business
Q1 FY14 (% yoy)
Q2 FY14 (% yoy)
Domestic business
19%
14%
Insecticides
24%
25%
Soaps
13%+ (7% volume growth)
3%+ (4% volume growth)
Hair Colours
32%
24%
 
 
 
International business
30%+
33%
Indonesia
17%+
14%+
Africa
49%+
53%+
Latin America
21%+
19%+
Europe
59%+
102%+
Source: Company, India Infoline Research
  • International business reported 33% yoy growth in revenues at Rs9.4bn driven by strong growth in African and European businesses, aided by inorganic growth. Organic constant currency growth for the quarter stood at 14% yoy.


  • Megasari in Indonesia (contributing ~45% to revenues) registered 14%+ yoy growth with constant currency growth of 13%+ yoy at ~Rs3.6bn. Operating margins (before payment of technical & business support fee and non food business) however contracted by 170bps to 17% due – 58% hike in minimum wages, 33% increase in fuel price and distribution arrangement for divested foods business at break even margins. The management has stated that this year will be an average season for the insecticides business in Indonesia and expect margins to improve in the coming quarters led by calibrated price hikes.


  • Africa business (contributing ~30% to international business revenues) registered 53%+ yoy growth at ~Rs2.5bn. Darling reported mere ~9% yoy constant currency organic revenue growth impacted by slow down in South Africa. EBITDA margins contracted by 160bps due to adverse product mix and input cost inflation. The management expects this business to witness margin expansion in Q3 FY14 on account of festive season.


  • Latin American business of GCPL, contributing ~20% to international business revenues recorded strong 19%+ yoy revenue growth at Rs1.5bn (constant currency growth of ~23%) driven by continuing market investments and new product launches. EBITDA margins expanded by 390bps to 7.9%. The European business contributing ~6% to international business revenues doubled to ~Rs1.4bn driven by strong performance of organic business and Soft & Gentle acquisition.


  • Operating margins for the quarter declined by 20bps to 15.1% due to 200bps/130bps increase in staff and advertising cost. A 300bps drop in raw material cost restricted further margin erosion. The sharp increase in staff cost was due to variable pay provision made for the year and wage inflation and strengthening middle level management team.

Cost analysis
As a % of net sales
Q2 FY14
Q2 FY13
bps yoy
Q1 FY14
bps qoq
Material cost
37.6
42.0
(435)
38.9
(126)
Purchase of FG
8.6
7.3
132
7.6
99
Personnel cost
10.3
8.3
199
10.4
(9)
Advertising cost
11.3
9.9
134
13.9
(263)
Other overheads
17.0
17.2
(12)
16.3
73
Total costs
84.9
84.7
18
87.2
(226)
Source: Company, India Infoline Research
  • Net profit for the quarter increased by 23% yoy to Rs2.2bn (marginally above our expectation of Rs2bn) due to sharp increase in operating costs and higher tax outgo. Adjusted net profit (after extraordinary items and minority interest) recorded 22% yoy growth at ~Rs1.9bn.


  • 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.  Earnings growth in H2 FY14 is expected to be good (~9%  yoy in H2 FY14) due to a favourable base in Africa margins and overall adspends (which will help drive revenue growth). The cross-pollination opportunity of products across geographies and leveraging of front-ended A&P spends for new product launches will further drive growth. We expect GCPL to witness 22.2% and 24% CAGR in revenues and net profit respectively over FY13-15. At the current market price of Rs854, the stock is trading at 27.6x FY15E EPS of Rs30.9. We maintain Buy rating on the stock with a 9-month price target of Rs943.

Results table
(Rs m)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Net sales
19,574
BSE 1,051.00 19 (1.84%)
NSE 1,050.95 15.80 (1.53%)

***Note: This is a NSE Chart

 

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