² GCPL recorded 16.8% yoy growth in revenues at Rs19.8bn during Q3 FY14 marginally below our expectations of Rs20.5bn. GCPL’s domestic FMCG business registered modest 13.4% yoy revenue growth at ~Rs10.5bn. Adjusting for discontinuation of contract manufacturing sales, FMCG business registered 14% yoy growth.
² The FMCG business growth could have been even better but for mere 8% yoy growth in the key household insecticides (HI) segment (category reported negative growth). The management has stated that the poor performance in HI segment is due to high base and unfavourable weather conditions in South and East India (key region for HI sales). The management expects Q4 to be a better quarter for HI, given that it is main season for HI sales.
² Soaps segment outperformed the category which degrew in both value and volume terms by recording ~6% yoy revenue growth. The soaps category is witnessing a pressure with slowdown at the mass premium end of the category. GCPL has taken ~3-4% price hikes in soaps segment in January 2014 to mitigate the impact of higher in palm oil prices. Hair Colour segment recorded strong 37% yoy growth led by strong performance of Godrej Expert Rich Hair Crème and Godrej Expert advanced hair colour (powder portfolio). The liquid detergents segment too reported strong 36% yoy revenue growth during the quarter.
Strong growth across all businesses
||Q1 FY14 (% yoy)
||Q2 FY14 (% yoy)
||Q3 FY14 (% yoy)|
||13%+ (7% volume growth)
||3%+ (4% volume growth)
||6%+ (6% volume growth)|
² International business reported 22% yoy growth in revenues at Rs9.5bn driven by strong growth in African and European businesses, aided by inorganic growth. Organic constant currency growth for the quarter stood at 13% yoy.
² Megasari in Indonesia (contributing ~45% to revenues) registered 12%+ yoy constant currency growth at ~Rs3.4bn (18% in constant currency terms adjusted for the divestment of Indonesia food business). Operating margins (before payment of technical & business support fee and non food business) however contracted by 260bps to 16% due to 60% hike in wages, 33% increase in fuel price and currency depreciation.
² Africa business (contributing ~30% to international business revenues) registered 29%+ yoy growth at ~Rs2.9bn (constant currency growth 21%). Darling reported organic constant currency revenue growth in double digits. EBITDA margins contracted by 280bps due to downtrading, but improved sequentially due to seasonality.
² Latin American business of GCPL, contributing ~20% to international business revenues recorded 10%+ yoy revenue growth at Rs1.7bn (constant currency growth of ~15%) driven by continuing market investments and new product launches. EBITDA margins expanded by 80bps to 9%. The European business contributing ~6% to international business revenues more than doubled to ~Rs1.1bn driven by strong performance of organic business and Soft & Gentle acquisition.
² Operating margins for the quarter contracted by 100bps to 15.5% due to 140bps/70bps increase in raw material and advertising cost. A 100bps drop in overhead cost restricted further margin erosion.
|As a % of net sales
|Purchase of FG
² Net profit matched our expectations by recording 13.5% yoy growth at Rs2.2bn. The growth could have been ever better but for sharp increase in operating costs and higher interest. Adjusted net profit (after extraordinary items and minority interest) recorded 13.7% yoy growth at ~Rs2bn.
² We cut down our earnings estimates by 4%/10%/11% for FY14/FY15/FY16 respectively to account for slower consumer demand, higher input costs and adspend and the change in Darling acquisition strategy of the company. Earlier GCPL had planned to increase stake from 0% to 51% in all the countries Darling operated and then increase stake in countries it is present from 51% to 100%. Now the management has indicated that, it will first consolidate its position in existing geographies by increasing stake from current 51% to higher level rather than going in new geographies.
Changes in estimates – Post Q3 FY14
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