1. Event Update I FMCG
May 12, 2010
Godrej Consumer Products BUY
CMP Rs298
GSL consolidation complete Target Price Rs357
GCPL acquires remaining 51% stake in GSL for Rs1,050cr: Godrej Consumer Investment Period 12 Months
(GCPL) has entered into an agreement to acquire remaining 51% stake in
Godrej Sara Lee (GSL), owned by its JV partner Sara Lee Corp for a Stock Info
consideration of Euro 185mn (Rs1,050cr) valuing GSL at Rs2,065cr. This
Sector FMCG
acquisition will help GCPL catapult in becoming one of the strongest
performers in the home and personal care space in India. Along with the Market Cap (Rs cr) 9,184
Megasari acquisition in Indonesia, this transaction would make GCPL the
Beta 0.3
second largest household insecticide player in Asia (outside Japan).
52 WK High / Low 336/147
Acquisition priced attractively at 15x FY2010 Earnings and 2.1x P/Sales:
During the year FY2010, GSL registered revenue of Rs965cr (20% yoy growth) Avg. Daily Volume 76,408
and PAT of Rs137cr (31% yoy growth). Hence, GCPL has acquired the 51%
Face Value (Rs) 1
stake in GSL for 15x FY2010 Earnings and 2.1x P/Sales which we believe is
extremely attractive. We recall, in May 2009, exactly a year ago, GCPL had BSE Sensex 17,196
acquired 49% stake in GSL via a share swap for Rs845cr valuing GSL at
Rs1,725cr implying a P/E of 16.5x FY2009 Earnings and 2.3x P/Sales. Nifty 5,157
Reuters Code GOCP.BO
Deal likely to be funded via equity: Post Megasari acquisition (to be funded
via low cost offshore debt), we believe GCPL’s debt: equity ratio is likely to rise Bloomberg Code GCPL@IN
to ~1.5x. Hence, we believe the current transaction is likely to be funded via
equity dilution. In this case, assuming a CMP of Rs300, GCPL will need to Shareholding Pattern (%)
issue an additional 3.5cr shares to fund Rs1,050cr transaction leading to an Promoters 71.8
equity dilution of 10.2%.
MF/Banks/Indian FIs 2.9
Target Price revised to Rs357, Recommend a Buy: While we have not factored
FII/NRIs/OCBs 18.5
the deal into our numbers owing to a lack of funding details, based on our
assumptions of full equity funding (10.2% dilution at CMP of Rs300), we Indian Public 6.8
believe the deal is likely to be EPS accretive by 8-10%. Moreover, with GCPL's
wider portfolio, stronger performance of its International business and a Abs. (%) 3m 1yr 3yr
potential upside trigger from further acquisitions (likely in Latin America, in
Sensex 6.5 41.4 24.6
talks with Embelleze and Issue), we believe that the stock still offers significant
triggers for sustained performance. Hence, we have revised our Target Price GCPL 16.4 110.6 120.3
upwards to Rs357 (Rs329), valuing GCPL at 23x FY2012E revised EPS of
Rs15.5 (based on our assumptions, does not include financials from the Tura
and Megasari acquisitions).
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,393 2,041 2,412 2,720
% chg 26.3 46.5 18.2 12.7
Net Profit (Adj) 172.6 339.6 392.4 437.8
% chg 8.4 96.7 15.5 11.6
OPM (%) 14.6 20.0 20.2 20.3
EPS (Rs) 5.6 11.0 12.7 14.2
P/E (x) 53.2 27.0 23.4 21.0 Anand Shah
P/BV (x) 13.5 12.1 9.5 7.7 Tel: 022 – 4040 3800 Ext: 334
RoE (%) 46.9 51.3 45.4 40.5 E-mail: anand.shah@angeltrade.com
RoCE (%) 30.3 41.6 42.0 40.5
Chitrangda Kapur
EV/Sales (x) 6.5 4.4 3.7 3.2
Tel: 022 – 4040 3800 Ext: 323
EV/EBITDA (x) 44.6 22.3 18.4 15.8
E-mail: chitrangdar.kapur@angeltrade.com
Source: Company, Angel Research, Note: Not including recent acquisitions of Megasari, Tura
and GSL – 51%
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. GCPL I Event Update
Financial Implications of the deal
We have modeled in a 21% and 15% yoy growth in Top-line for GSL during
FY2011E and FY2012E respectively. Assuming a 14% Net Margin for GSL in
respective years, we believe the additional 51% stake of GSL is likely to add Rs83cr
and Rs96cr Bottom-line to GCPL in FY2011E and FY2012E respectively. Based on
our assumption of full funding via equity dilution (10.2% at CMP of Rs300), we
believe the deal is likely to be EPS accretive by 8-10%.
Exhibit1: Acquisition attractively priced, likely to be EPS accretive by 8-10%
(Rs cr) FY2010 FY2011 FY2012
Top-line
GCPL + GSL (49%) 2,041.2 2,412.3 2,719.5 Current Estimates for GCPL (Including 49% GSL Stake)
GSL Revenues 965.0 1,163.3 1,337.8 Total GSL Revenues
% chg 20.5 15.0 Modeling in 15-20% yoy growth in Top-line for GSL
GSL (Additional 51%) 593.3 682.3 Contribution to Top-line from acquisition of additional 51% of GSL
GCPL (100% GSL) 3,005.6 3,401.8 New Top-line estimates for GCPL (including 100% GSL)
Top-line Accretion 24.6 25.1 51% GSL to add ~25% to Top-line of GCPL
Bottom-line
GCPL + GSL (49% stake) 339.6 392.4 437.8 Current Estimates for GCPL (Including 49% GSL Stake)
GSL PAT 137.0 162.9 187.3 Total GSL Profit
NPM % 14.2 14.0 14.0 Maintaining 14% Net Margin for GSL
% chg 18.9 15.0
GSL (Additional 51%) 83.1 95.5 Contribution to Earnings from acquisition of additional 51% of GSL
GCPL (100% GSL) 475.5 533.3 New Earnings estimates for GCPL (including 100% GSL)
No of Shares (Post dilution) 34.32 34.32 Assuming deal funded via 100% equity dilution at CMP of Rs300
EPS (Including GSL 100%) 13.9 15.5 EPS (Post-dilution, including 100% of GSL's Earnings)
Old EPS Estimate 12.7 14.2
EPS Accretion 8.8 9.4 Deal to be EPS accretive by 8-10%
Source: Company, Angel Research
May 12, 2010 2

3. GCPL I Event Update
Profit & Loss Statement (Consolidated) Rs crore
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Gross sales 990 1,133 1,435 2,082 2,456 2,768
Less: Excise duty 38 30 42 41 43 49
Net Sales 952 1,103 1,393 2,041 2,412 2,720
Other operating income 0 1 4 4 8 9
Total operating income 952 1,104 1,397 2,045 2,420 2,729
% chg 36.0 16.0 26.5 46.4 18.3 12.8
Total Expenditure 772 888 1,189 1,634 1,926 2,169
Cost of Materials 462 518 770 946 1,148 1,314
Advertising Exp 77 92 97 172 200 223
Personnel 54 73 87 188 220 245
Others 178 206 237 328 358 388
EBITDA 180 214 204 407 486 551
% chg 27.2 19.4 (5.0) 100.0 19.3 13.3
(% of Net Sales) 19 23 21 43 51 58
Depreciation& Amortisation 14 18 19 24 28 32
EBIT 165 196 184 384 458 519
% chg 27.5 18.6 (6.0) 108.0 19.3 13.4
(% of Net Sales) 17.4 20.6 19.4 40.3 48.1 54.6
Interest & other Charges 10 15 19 11 10 9
Other Income 3 5 40 43 39 37
(% of PBT) 1.7 2.4 19.1 10.3 7.9 6.7
Share in profit of Associates - - - - - -
Recurring PBT 159 187 209 420 494 556
% chg 20.0 18.3 11.6 100.7 17.5 12.6
Extraordinary Expense/(Inc.) (10) 0 (1) 0 0 0
PBT (reported) 168 187 210 420 494 556
Tax 24 28 37 80 101 118
(% of PBT) 15.4 15.1 17.5 19.1 20.5 21.3
PAT (reported) 144 159 173 340 392 438
Add: Share of associates - - - - - -
Less: Minority interest (MI) - - - - - -
PAT after MI (reported) 144 159 173 340 392 438
ADJ. PAT 134 159 173 340 392 438
% chg 11.1 18.7 8.4 96.7 15.5 11.6
(% of Net Sales) 14.1 14.4 12.4 16.6 16.3 16.1
Basic EPS (Rs) 5.9 7.1 6.7 11.0 12.7 14.2
Fully Diluted EPS (Rs) 4.4 5.2 5.6 11.0 12.7 14.2
% chg 11.1 18.7 8.4 96.7 15.5 11.6
May 12, 2010 3

4. GCPL I Event Update
Balance Sheet (Consolidated) Rs crore
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 23 23 26 31 31 31
Preference Capital - - - - - -
Reserves& Surplus 99 149 541 727 940 1,161
Shareholders Funds 122 172 567 758 970 1,192
Minority Interest - - - - - -
Total Loans 174 187 278 233 208 183
Deferred Tax Liability 8 9 4 4 4 4
Total Liabilities 304 368 849 995 1,182 1,379
APPLICATION OF FUNDS
Gross Block 270 294 337 486 568 632
Less: Acc. Depreciation 111 125 110 133 162 193
Net Block 159 168 227 353 406 439
Capital Work-in-Progress 40 72 2 15 23 25
Goodwill 89 96 209 209 209 209
Investments 0 0 8 8 8 8
Current Assets 278 352 733 820 1,013 1,229
Cash 47 43 378 339 471 657
Loans & Advances 46 67 127 153 169 177
Other 184 243 228 328 373 396
Current liabilities 262 323 330 409 475 531
Net Current Assets 16 29 403 412 538 698
Mis. Exp. not written off - 3 - - - -
Total Assets 304 368 849 995 1,182 1,379
Cash Flow Statement (Consolidated) Rs crore
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Profit before tax 159 187 209 420 494 556
Depreciation 14 18 19 24 28 32
Change in Working Capital (12) (22) (45) (47) 5 24
Interest / Dividend (Net) 10 13 (17) (25) (20) (18)
Direct taxes paid 24 28 37 80 101 118
Others 5 (2) (5) (1) 1 1
Cash Flow from Operations 151 165 125 290 407 477
Inc./ (Dec.) in Fixed Assets (129) (63) (156) (161) (90) (67)
Inc./ (Dec.) in Investments 1 0 (8) 0 0 0
Cash Flow from Investing (128) (63) (164) (161) (90) (67)
Issue of Equity 0 0 396 5 0 0
Inc./(Dec.) in loans 105 13 90 (45) (25) (25)
Dividend Paid (Incl. Tax) 97 109 120 153 180 216
Interest / Dividend (Net) 10 13 (8) (25) (20) (18)
Cash Flow from Financing (2) (108) 375 (168) (186) (223)
Inc./(Dec.) in Cash 21 (5) 336 (39) 132 186
Opening Cash balances 26 47 43 378 339 471
Closing Cash balances 47 43 378 339 471 657
May 12, 2010 4

5. GCPL I Event Update
Key Ratios
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 68.4 57.6 53.2 27.0 23.4 21.0
P/CEPS 45.3 37.9 39.9 25.3 21.8 19.5
P/BV 55.1 39.2 13.5 12.1 9.5 7.7
Dividend yield (%) 1.3 1.4 1.3 1.4 1.7 2.0
EV/Sales 9.8 8.5 6.5 4.4 3.7 3.2
EV/EBITDA 51.8 43.4 44.5 22.3 18.3 15.8
EV / Total Assets 30.6 25.4 10.7 9.1 7.5 6.3
Per Share Data (Rs)
EPS (Basic) 5.9 7.1 6.7 11.0 12.7 14.2
EPS (fully diluted) 4.4 5.2 5.6 11.0 12.7 14.2
Cash EPS 6.6 7.9 7.5 11.8 13.7 15.2
DPS 3.8 4.1 4.0 4.3 5.0 6.0
Book Value 5.4 7.6 22.1 24.6 31.5 38.7
Returns (%)
RoCE (Pre-tax) 72.3 58.5 30.3 41.6 42.0 40.5
Angel RoIC (Pre-tax) 158.4 98.9 76.3 110.6 97.9 103.7
RoE 143.5 108.5 46.9 51.3 45.4 40.5
Turnover ratios (x)
Asset Turnover (Gross Block) 3.5 3.8 4.1 4.2 4.3 4.3
Inventory / Sales (days) 52 63 44 42 40 37
Receivables (days) 19 17 16 16 17 17
Payables (days) 97 96 77 66 65 65
May 12, 2010 5

6. GCPL I Event Update
Research Team Tel: 022- 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement GCPL
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
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May 12, 2010 6