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Godrej Consumer Products Limited: F2Q11: Organic Revenue Growth Disappoints; EW
Quick Comment: Stock likely to correct on the back
of F2Q result. GCPL reported consolidated F2Q11
revenue, operating profit and adjusted PAT growth of
67% 58%, & 40%, respectively, versus our forecasts of
82% 74%, & 67%. We estimate that underlying organic
revenue declined by more than 6%, driven by a ~2%
decline in the domestic business and over 20% decline
in the international business.
Domestic business: sluggish organic growth.
GCPL’s standalone business reported a 3% decline in
revenue, driven by ~10% decline in the soaps business.
Operating profit grew 16% during the quarter; however,
adjusting for the technical fee from Megasari of
~Rs80mn, operating profit rose by only 5%, we estimate.
GCPL’s domestic hair care business grew by 21%,
driven by the recent 8-9% weighted average price
increase.
Slowdown in the international business. GCPL
reported international revenue growth of more than
200%, however, underlying revenue growth (excluding
acquisitions) declined by over 20%, we estimate. The
African business (Rapidol + Kinky +Tura) for GCPL
witnessed 25% growth, while the UK business (Keyline)
declined by 33%, albeit off a high base. Based on these
results, it appears that the revenue contribution of Tura
(recent acquisition in Africa) is lower than our initial
expectation. Operating profit margin for the consolidated
business declined by 100bps, driven by a 90bps decline
in gross margin and 140bps increase in ad-spend.
Remain Equal-weight. We believe investors will see a
better entry opportunity as the domestic business
remains under pressure and GCPL consolidates its
acquisitions. GCPL has outperformed the market by
10% over the past 3 months, driven by management
restructuring and value accretive acquisitions. In our
view, the current stock price already factors in
acceleration in earnings from these factors.
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