GODREJ CONSUMER: Met management; Inventory destocking to impact Toilet Soaps and Hair Color; Neutral
We met the management of Godrej Consumer (GCPL IN, Mkt Cap US$2.9b, CMP Rs411, Neutral) to get an update on Indian operations and integration of various acquisitions. Key takeaways:
- Standalone growth will be muted in 2QFY11 due to conscious decision to reduce dealer level inventory. However, retail offtake is strong in both soaps and hair color, resulting in market share gains in 2QFY11 as well.
- Toilet Soaps is likely to report another quarter of lower growth while price increase in Hair Color would result in higher growth rates. Given the recent upsurge in PFAD prices, Godrej Consumer is likely to effect a price increase in Toilet Soaps in the coming fortnight (media sources indicate 5% increase).
- Godrej Homecare Products will likely report higher growth as the Household Insecticides (HI) business has benefited from higher infestation of mosquitoes and epidemics due to higher rainfall this year.
- Integration of recent acquisitions is in line with management’s internal expectation. The management is evaluating monetization of (1) Product synergy (Hair Color from Argenicos, Air Freshener from Megasari, etc), (2) Market synergy (Toilet soap launch in Nigerian market leveraging Tura’s distribution), (3) Sourcing synergy (common sourcing for GHPL and Megasari), and (4) Distribution synergy (GHPL and standalone business in India).
- Consolidated debt in the books stand at US$350m (Rs16b); QIP proceeds have been used to pay off debt raised for acquisition of GHPL stake.
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