1. 4QFY2010 Result Update I FMCG
April 26, 2010
Godrej Consumer Products ACCUMULATE
CMP Rs298
Performance Highlights Target Price Rs329
Godrej Consumer (GCPL) posted a Top-line growth of 48.1% yoy, in-line with Investment Period 12 Months
our Estimates. However, the Earnings growth at 54.6% yoy was ahead of our
expectations. Adjusted for Godrej Sara Lee’s (GSL) contribution, the Top-line Stock Info
and Earnings growth stood at 5.3% yoy and 16% yoy, respectively. After the
Sector FMCG
4QFY2010 results, we have marginally tweaked our numbers to factor in the
slowdown in the core domestic business (Soaps and Hair Colours). Market Cap (Rs cr) 9,175
We maintain an Accumulate on the stock.
Beta 0.2
Earnings beat estimates, Domestic growth at 1.9% disappointing: Godrej 52 WK High / Low 334/130
Consumer (GCPL) reported a strong Top-line growth at 48.1% yoy to Rs509cr.
Godrej-Sara Lee (GSL) contributed Rs147cr to the Top-line, adjusted for which Avg. Daily Volume 73,918
GCPL posted a disappointing growth of 5.3% yoy to Rs362cr. Moreover,
Face Value (Rs) 1
international operations (particularly Africa) registered strong growth during
the quarter (we estimate it at ~19% yoy), which indicates that domestic BSE Sensex 17,745
operations (without GSL) grew just 1.9% yoy. We estimate that Soaps declined
Nifty 5,322
~3% yoy and Hair Colours grew in low single digits. We attribute the same to
base effect and negative value growth. GCPL’s consolidated Earnings for the Reuters Code GOCP.BO
quarter registered a growth of 54.6% yoy to Rs92cr, aided by the increase in
Bloomberg Code GCPL @IN
the Top-line and Margin expansion. On the operating front, GCPL delivered a
Margin expansion of 154bp yoy to 21.1%, driving a 59.7% yoy growth in Shareholding Pattern (%)
EBITDA to Rs108cr, partially aided by a low base and GSL’s consolidation. A
614bp yoy jump in Gross Margins (owing to a low base effect) aided Margin Promoters 71.8
expansion. MF/Banks/Indian FIs 2.9
Outlook and Valuation: Going ahead, we expect the growth momentum to FII/NRIs/OCBs 18.5
decelerate and expect GCPL to post a 15% CAGR in the Top-line and a 14%
CAGR in Earnings during FY2010-12E, as the benefits of price hikes fade out, Indian Public 6.8
GSL’s consolidation effect forms a base and Gross Margin expansion peaks Abs. (%) 3m 1yr 3yr
out. At the CMP of Rs297, GCPL is trading at 21x FY2012E EPS of Rs14.2.
With GCPL's wider portfolio, stronger performance of its International Sensex 5.7 56.6 24.7
business, the likely acquisition of the remaining 51% stake in GSL from Sara
Lee and a potential upside trigger from further acquisitions (likely in Latin GCPL 20.4 125.2 116.8
America), we believe that the stock still offers significant triggers for sustained
performance. Hence, we maintain an Accumulate on the stock, with a Target
Price of Rs329, valuing GCPL at 23x FY2012E EPS.
Key Financials (Consolidated)
Y/E Mar (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
E-mail: anand.shah@angeltrade.com
RoE (%) 46.9 51.3 45.4 40.5
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) 44.5 22.3 18.3 15.8 E-mail: chitrangda.kapur@angeltrade.com
Source: Company, Angel Research; Note: Not factored Tura/Megasari Numbers
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. GCPL I 4QFY2010 Result Update
Exhibit 1: Quarterly Performance Update (Consolidated)
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY2010 FY2009 % chg
Net Sales 509.2 343.9 48.1 2,041.2 1,393.0 46.5
Consumption of RM 226.8 174.3 30.1 946.3 769.5 23.0
(% of Sales) 44.5 50.7 46.4 55.2
Staff Cost 32.7 24.2 34.9 187.7 87.6 114.4
(% of Sales) 6.4 7.0 9.2 6.3
Advertising 34.5 15.3 125.2 172.1 99.7 72.5
(% of Sales) 6.8 4.5 8.4 7.2
Other Expenses 107.7 62.8 71.6 327.8 232.4 41.0
(% of Sales) 21.2 18.3 16.1 16.7
Total Expenditure 401.7 276.6 45.2 1,633.9 1,189.3 37.4
Operating Profit 107.5 67.3 59.7 407.3 203.7 99.9
OPM (%) 21.1 19.6 20.0 14.6
Interest 2.7 4.8 11.1 20.1
Depreciation/Amortisation 6.1 4.0 50.0 23.6 19.2 22.7
Other Income 12.2 10.3 18.4 47.3 44.8 5.6
PBT (excl Ext. Items) 111.0 68.8 61.3 419.9 209.2 100.7
Ext Income/(Expenses) 0.0 0.0 0.0 0.0
PBT (incl Ext. Items) 111.0 68.8 61.3 419.9 209.2 100.7
(% of Sales) 21.8 20.0 20.6 15.0
Prov. for Taxation 19.2 9.4 103.8 80.3 36.0 123.4
(% of PBT) 17.3 13.7 19.1 17.2
Recurring PAT 91.8 59.4 54.6 339.6 173.3 96.0
PATM (%) 18.0 17.3 16.6 12.4
Reported PAT 91.8 59.4 54.6 339.6 173.3 96.0
Equity Shares (cr) 30.8 25.7 30.8 25.7
EPS (Rs) 3.0 2.3 28.9 11.0 6.7 63.4
Source: Company, Angel Research
Godrej Sara Lee drives Top-line growth; adjusted growth at 5.3% yoy
disappointing
Godrej Consumer (GCPL) reported strong Top-line growth at 48.1% yoy to Rs509cr
(Rs344cr), in-line with our expectations of a 51% yoy growth to Rs519cr.
Godrej-Sara Lee (GSL) contributed Rs147cr to the Top-line for the quarter. However,
adjusted for GSL’s revenue, GCPL posted a growth of 5.3% yoy to Rs362cr which
was below our expectation. Moreover, international operations (particularly Africa)
registered strong growth during the quarter (we estimate it at ~19% yoy) which
indicates that domestic operations (without GSL) grew just 1.9% yoy. While our talks
with the management indicate pressure on volumes but no significant decline in
Soaps or Hair Colour, the muted growth in domestic business (we had modeled in
moderation) has come as a negative surprise to us. We attribute the same to base
effect and negative value growth.
Margin expansion boosts Earnings, which grow 54.6% yoy
GCPL’s consolidated Earnings for the quarter registered a growth of 54.6% yoy to
Rs92cr (Rs59cr), ahead of our estimates of a 37% yoy growth to Rs81cr. In terms of
Earnings, GSL’s consolidation contributed Rs23cr during the quarter, adjusted for
which the growth in Bottom-line stood at 16% yoy to Rs69cr. The robust growth in
the Top-line and Margin expansion boosted Earnings. However, in terms of EPS
(adjusted for dilution of share swap to acquire GSL), GCPL registered a growth of
28.9% yoy to Rs3 (Rs2.3).
April 26, 2010 2
3. GCPL I 4QFY2010 Result Update
OPM expands 154bp, aided by 614bp Gross Margin expansion
At the operating front, GCPL delivered a Margin expansion of 154bp yoy to 21.1%
(19.6%), driving a 59.7% yoy growth in EBITDA to Rs108cr (Rs67cr), partially aided
by a low base and GSL’s consolidation. A 614bp yoy jump in Gross Margins (owing
to a low base effect) and a decrease of 62bp yoy in Staff costs were the key drivers
behind the Margin expansion. However, higher Other expenditure (up 290bp yoy)
and a jump in Advertising spends (up 232bp yoy) kept Margins under check. Going
ahead, we expect input costs for GCPL to rise, as palm oil prices have hardened
during the quarter and as the benefits of inventory/price covers fade away. We have
modeled in a 200bp contraction in Gross Margins during FY2010-12E.
Soaps Revenue declines ~3%; Hair Colour growth moderates to low
single digits
GCPL’s Soaps business registered a decline of ~3%, largely owing to a high base
effect (4QFY2009 saw soaps clocking a 46% yoy growth) and negative value
growth. Our talks with the management indicate pressure on volume growth, but no
significant decline. Near-term growth in Soaps is likely to be driven by an increasing
focus on smaller packs (to drive rural penetration) and the successful launch of new
variants. The company continued to be the second-largest toilet soaps player in
India, increasing its market share to 10.5% from 9.4% in March 2009 (increased
sequentially, as well, by 20bp). Godrej No1 was re-launched in April 2010, with a
new shape, packaging and natural oils, and Cinthol Regular was launched in small
packs, priced at Rs6. Going ahead, we expect GCPL to witness increased competitive
pressures, owing to higher investments, and aggression from HUL and ITC.
Moreover, higher food inflation and the fading effect of price hikes, coupled with
higher competitive intensity, are likely to lead to a moderation in the revenue of this
segment.
GCPL’s Hair Colour business witnessed a moderation in growth to mid single digits,
owing to negative value growth and pressure on the volume front. GCPL maintained
its marketshare in the category on a sequential basis at 33.3%.
International Business on a strong footing; Keyline witnesses a slow-down
The performance of the International business registered yet another quarter of
steady gains, registering an overall growth of ~19% yoy, largely aided by significant
revenue traction in the Rapidol and Kinky businesses. For the full year FY2010,
Keyline Brands (UK), registered a muted growth of 9% yoy. However, African
operations, namely Rapidol (South Africa) and Kinky, posted a robust growth of 42%
yoy and 41% yoy, respectively, in INR terms. However, the Profitability of the
international operations came under pressure during the quarter (due to currency
volatility), and registered a decline of 18% to Rs2.5cr (Rs3.1cr).
Exhibit 2: Key Subsidiaries Performance (Consolidated)
Y/E Mar (Rs cr) 4QFY10 4QFY09 % chg FY2010 FY2009 % chg
Sales (Rs cr)
Keyline Brands 45.5 43.5 4 218.6 200.6 9
Rapidol 17.6 11.0 60 69.4 48.8 42
Kinky Group 13.9 10.7 30 72.3 51.4 41
GGME 4.5 3.0 50 17.7 12.2 45
Total Sales - Subsidiaries 81.4 68.2 19 378.0 313.1 21
Source: Company, Angel Research
April 26, 2010 3
4. GCPL I 4QFY2010 Result Update
Outlook and Valuation
After the 4QFY2010 results, we have marginally tweaked our numbers to factor in a
slowdown in the core domestic business (Soaps and Hair Colours). However, owing
to the strong growth in the insecticides business (Godrej Sara Lee) and the steady
performance of the International business (particularly Africa), our Top-line estimate
is largely unchanged. We have revised our Operating Margin marginally upwards to
factor in a higher Gross Margin (despite modeling almost a 200bp contraction over
FY2010-12E). However, inability to take price hikes (due to competitive pressures),
the impact of currency volatility on international operations and higher-than-
anticipated advertising spends carry downside risks to our estimates.
Exhibit 3: Revision in Estimates
Old Estimate New Estimate % chg
(Rs cr) FY11E FY12E FY11E FY12E FY11E FY12E
Revenue 2,420 2,742 2,412 2,720 (0.3) (0.8)
OPM (%) 19.9 20.2 20.2 20.3 25bp 5bp
EPS 12.6 14.3 12.7 14.2 1.0 (0.7)
Source: Angel Research
FY2010E has been a year of strong growth for GCPL, driven by significant Gross
Margin expansion, improved traction in the international business and consolidation
of GSL’s business. However, going ahead, we expect the growth momentum to
decelerate, and expect GCPL to post a 15% CAGR in the Top-line and a 14% CAGR
in Earnings during FY2010-12E, as the benefits of price hikes fade out, GSL’s
consolidation effect forms a base and the Gross Margin expansion peaks out.
At the CMP of Rs297, GCPL is trading at 21x FY2012E EPS of Rs14.2. While we have
not factored the Tura and Megasari deals into our numbers, owing to a lack of
details, particularly in terms of deal size, our preliminary analysis indicates that both
the deals are likely to be EPS accretive. Moreover, with GCPL's wider portfolio, a
stronger performance of its International business, the likely acquisition of the
remaining 51% stake in GSL from Sara Lee and a potential upside trigger from
further acquisitions (likely in Latin America), we believe that the stock still offers
significant triggers for sustained performance. Hence, we maintain an Accumulate
on the stock, with a Target Price of Rs329, valuing GCPL at 23x FY2012E EPS.
Exhibit 4: 1-year forward P/E band
350 14x 18x 22x 26x
300
250
Share Price (Rs)
200
150
100
50
-
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Source: Bloomberg, Angel Research
April 26, 2010 4
9. GCPL I 4QFY2010 Result Update
Research Team Tel: 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
4. Broking relationship with company covered No
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April 26, 2010 9
