- GCPL continued its strong growth momentum during Q3 FY13 by recording 25.8% yoy growth in revenues at Rs16.9bn – in line with our expectations. The growth was primarily led by a healthy 20.4% yoy growth in the domestic business at Rs9.2bn (contributes ~55% to consolidated revenues) and 28%+ yoy growth in Megasari.
- The domestic FMCG business revenues were driven by a strong 20%+ yoy growth in soaps and 28%+ yoy growth in household insecticides (more than 1.3x of the category) segment. Household insecticides sales were driven by the synergy benefits from the merger of insecticides and personal products sales systems and newly launched Goodknight Advanced colour play. Soaps volume growth however was muted at 2% mainly due to compliance of new packaging norms. Post re-launch of the entire range Cinthol brand has done well. The management targets a more premium and a wider positioning across personal care with Cinthol. Hair colour segment registered 17% yoy revenue growth on the back of launch of Godrej Expert Rich Crème hair colour and “Oh My God” marketing campaign.
Strong growth across all businesses
Business % yoy Domestic business 20.4% Insecticides 28%+ (1.3x the category) Soaps 20%+ (0.8x the category) Hair Colours 17% International business 16% Indonesia 30%+ Africa 21% Latin America 83% UK 15%+
- International business reported organic growth of 16% yoy in revenues at ~Rs7.6bn mainly on back of distribution expansion and healthy performance of new product launches. 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 40bps (before technical fees) to 20% due to higher brand investments.
- Africa business (contributing ~30% to international business revenues) registered 21% yoy growth at ~Rs2.3bn led by the consolidation of the Darling business. This was also the full quarter of launch of insecticides in Nigeria. OPM contracted by 1070bps to 20% due to high base effect compared to 30.7% in Q3 FY12 (due to one time benefit of low cost inventory).
- Latin American business of GCPL, contributing ~20% to international business revenues recorded strong 83% yoy revenue growth at ~Rs1.5bn (constant currency growth of ~91%) aided by the consolidation of the Cosmetica acquisition. The European business contributing ~6% to international business revenues recorded 15% yoy growth at Rs500mn.
- Operating margins for the quarter contracted by 310bps to 16.6% mainly due to sharp 240bps/220bps/110bps increase in advertising/overhead and staff cost. The sharp increase in adspends was on account of several new product launches during the year like Godrej Aer fresheners in Indian market, household insecticides in Nigeria and Godrej Crème hair colours in India. Going forward, we expect the adspends to sales ratio to moderate from current levels.
As a % of net sales Q2 FY13 Q2 FY12 bps yoy Q1 FY13 bps qoq Material cost 40.8 38.6 223 40.6 23 Purchase of FG 7.3 9.8 (248) 7.3 5 Personnel cost 8.4 6.9 149 9.3 (93) Advertising cost 9.7 9.4 37 11.0 (129) Other overheads 18.5 18.0 52 17.6 96 Total costs 84.7 82.6 214 85.7 (97)
Adjusted net profit (after minority interest) recorded mere 1.1% yoy growth at ~Rs1.7bn (below our expectation of Rs2.1bn) due to sharp increase in operating costs and higher tax outgo. Adjusting for the forex loss of Rs27mn (against Rs59mn in Q3 FY12), reported PAT increased by 3.1% yoy to Rs1.7bn.
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 9-mth price target of Rs792.
|(Rs m)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|Purchase of FG||(1,272)||(1,007)||26.3||(1,167)||8.9|
|OPM (%)||16.6||19.7||(310) bps||15.3||129 bps|
|Effective tax rate (%)||25.9||22.7||-||21.3||-|
|Other provisions / minority etc||(178)||(162)||
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