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UBS Investment Research
Godrej Consumer Products
I nvesting for growth
Overall revenues +40%; domestic revenues +20%
GCPL’s Q1 FY12 revenues grew 40% YoY led by strong growth in its domestic
(+20%) and international operations (+92%). Within the domestic business, soaps
grew +17% (9% volume growth), hair care +19% (10% volume growth), and
insecticides +40%. Consolidated EBITDA was Rs 1.48bn and EBITDA margins at
14.8%, while PAT (adjusted) was Rs641m, a decline of 23% YoY mainly due to
higher COGS and A&P spends.
International business displayed robust performance
Megasari (~54% of international revenues) posted strong comparable sales growth
of 19% YoY and GCPL’s LatAm business (~16% of international business) grew
22% YoY. We believe the contribution of GCPL’s African business will increase
in future due to the integration of Darling Group (DGH) operations with GCPL and
synergies between Rapidol and DGH leading to increased sales growth.
Cost increases; one-off and investments for growth
COGS/sales increased to 49% vs 46.1% in Q4 FY11 and 49.3% in Q1 FY11 due
mainly to higher vegetable oil prices. GCPL increased its ad spend (11.7% of sales
vs 7.4% in Q4 FY11 and 10.4% in Q1 FY11) both in the domestic and
international markets due to new product launches. We believe these investments
will help grow brand sales in the future.
Valuation: Buy rating, Rs500 price target
We have a Buy rating on GCPL with a price target of Rs500 derived from our sumof-
the-parts analysis of each business.
GCPL’s COGS/sales trend indicates that raw material prices were high QoQ and
in line with year-ago levels. The key reasons for the disappointment in COGS
have been:
1. High raw material prices through April-June 2011. Now, however, there
is visibility of raw material prices coming down, with palm prices
having corrected 8% in the past two months.
2. Price increases of ~7-8% on the soaps portfolio and of ~3% on the
insecticide portfolio are still to be rolled out all-India. The incremental
benefit to revenues would be visible in the September 2011 results.
3. The June quarter is a seasonally big quarter for the soaps business,
which has a relatively lower gross margin; hence, the COGS skew for
the company was worse this quarter.
The A&P spend of GCPL was at an all-time high of 11.7%. This was due to:
1. The launch of ‘HIT magic paper’ in Indonesia;
2. Additional spends in the domestic market due to the new launch of a hair
colour product and seasonally high advertising quarter. We believe these
additional media spends will ensure GCPL’s volume growth stays higher than
category growth
An analysis of the Standalone and International operations of GCPL indicates
that the international business posted robust growth of 92% YoY in Q1 FY12.
This growth was mainly led by its Indonesian operations, which contributed to
~54% of international revenue, and Latin America, which contributed to ~16%
of its international business revenue. The profitability of both its domestic and
international operations declined due to: 1) an increase in COGS; and 2) an
increase in A&P spends (international A&P spends doubled from Rs258m to
Rs516m in Q1 FY12). At a consolidated level, about 140-150 bps decline in
EBITDA margins can be attributed to an increase in A&P spends and ~100 bps
to promotion spends
Godrej Consumer Products
Godrej Consumer Products (GCPL) focuses on home care, hair care and
personal wash products in Asia, Africa and Latin America. In FY10, personal
wash was its largest revenue contributor at 41%, while hair care and home care
contributed 20% each. Following the GHPL and Megasari acquisitions,
homecare contributed 9% of total revenue in Q1 FY11, while personal wash and
hair care contributed 33% and 18%, respectively. GCPL's FY10 turnover was
US$443m, of which US$365m was from domestic operations (including GHPL)
and the remaining US$79m from international operations.
Statement of Risk
We think the key risks to GCPL’s earnings and valuation include intensifying
competition, increasing raw material costs and slowing economic growth. With
GCPL’s expansion in international markets, we believe, the company also has
exposure to multiple country and currency risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Godrej Consumer Products
I nvesting for growth
Overall revenues +40%; domestic revenues +20%
GCPL’s Q1 FY12 revenues grew 40% YoY led by strong growth in its domestic
(+20%) and international operations (+92%). Within the domestic business, soaps
grew +17% (9% volume growth), hair care +19% (10% volume growth), and
insecticides +40%. Consolidated EBITDA was Rs 1.48bn and EBITDA margins at
14.8%, while PAT (adjusted) was Rs641m, a decline of 23% YoY mainly due to
higher COGS and A&P spends.
International business displayed robust performance
Megasari (~54% of international revenues) posted strong comparable sales growth
of 19% YoY and GCPL’s LatAm business (~16% of international business) grew
22% YoY. We believe the contribution of GCPL’s African business will increase
in future due to the integration of Darling Group (DGH) operations with GCPL and
synergies between Rapidol and DGH leading to increased sales growth.
Cost increases; one-off and investments for growth
COGS/sales increased to 49% vs 46.1% in Q4 FY11 and 49.3% in Q1 FY11 due
mainly to higher vegetable oil prices. GCPL increased its ad spend (11.7% of sales
vs 7.4% in Q4 FY11 and 10.4% in Q1 FY11) both in the domestic and
international markets due to new product launches. We believe these investments
will help grow brand sales in the future.
Valuation: Buy rating, Rs500 price target
We have a Buy rating on GCPL with a price target of Rs500 derived from our sumof-
the-parts analysis of each business.
GCPL’s COGS/sales trend indicates that raw material prices were high QoQ and
in line with year-ago levels. The key reasons for the disappointment in COGS
have been:
1. High raw material prices through April-June 2011. Now, however, there
is visibility of raw material prices coming down, with palm prices
having corrected 8% in the past two months.
2. Price increases of ~7-8% on the soaps portfolio and of ~3% on the
insecticide portfolio are still to be rolled out all-India. The incremental
benefit to revenues would be visible in the September 2011 results.
3. The June quarter is a seasonally big quarter for the soaps business,
which has a relatively lower gross margin; hence, the COGS skew for
the company was worse this quarter.
The A&P spend of GCPL was at an all-time high of 11.7%. This was due to:
1. The launch of ‘HIT magic paper’ in Indonesia;
2. Additional spends in the domestic market due to the new launch of a hair
colour product and seasonally high advertising quarter. We believe these
additional media spends will ensure GCPL’s volume growth stays higher than
category growth
An analysis of the Standalone and International operations of GCPL indicates
that the international business posted robust growth of 92% YoY in Q1 FY12.
This growth was mainly led by its Indonesian operations, which contributed to
~54% of international revenue, and Latin America, which contributed to ~16%
of its international business revenue. The profitability of both its domestic and
international operations declined due to: 1) an increase in COGS; and 2) an
increase in A&P spends (international A&P spends doubled from Rs258m to
Rs516m in Q1 FY12). At a consolidated level, about 140-150 bps decline in
EBITDA margins can be attributed to an increase in A&P spends and ~100 bps
to promotion spends
Godrej Consumer Products
Godrej Consumer Products (GCPL) focuses on home care, hair care and
personal wash products in Asia, Africa and Latin America. In FY10, personal
wash was its largest revenue contributor at 41%, while hair care and home care
contributed 20% each. Following the GHPL and Megasari acquisitions,
homecare contributed 9% of total revenue in Q1 FY11, while personal wash and
hair care contributed 33% and 18%, respectively. GCPL's FY10 turnover was
US$443m, of which US$365m was from domestic operations (including GHPL)
and the remaining US$79m from international operations.
Statement of Risk
We think the key risks to GCPL’s earnings and valuation include intensifying
competition, increasing raw material costs and slowing economic growth. With
GCPL’s expansion in international markets, we believe, the company also has
exposure to multiple country and currency risk.
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