Godrej Consumer - Q2FY12 - A mixed bag: Healthy top-line; PAT disappoints on weak domestic margins & forex losses ::JP Morgan

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


 Healthy sales growth; but PAT disappoints on weak domestic margins
and forex losses. GCPL reported Net Sales, EBITDA and PAT growth of
23%, 25% and -2% respectively during Q2FY12. Revenue growth trends
were healthy and ahead of expectations. However domestic business
margins disappointed led by weak gross margins (unfavorable product mix)
and higher promotional expenses. Forex loss of Rs165mn due to import
exposure for raw material (domestic) and MTM impact in overseas
subsidiaries on account of revaluation of intercompany loans led to PAT
disappointment.
 Domestic sales rise 24% y/y driven by 32%, 15% and 29% respective sales
growth for soaps, hair colors and household insecticide (HHI) during
Q2FY12. Volume growth stood at 19% (+ve surprise), ~7% (below
expectations) and 26% respectively for soaps, hair colors and HHI. Gross
margins (-310bp y/y) were adversely impacted by higher palm oil costs and
faster growth for low margin soaps segment. EBITDA grew 12% y/y
(margins declining 180bp y/y) and forex losses led to nearly flat PAT for
domestic operations during the qtr.
 Overseas operations: Good quarter. Overseas revenues registered LTL
growth of 19% (17% adjusted for currency impact) during the quarter.
Megasari posted healthy performance registering 27% sales growth (~20%
adjusted for currency) and EBITDA margins of 17%. Latin American
operations posted 13% sales growth (~18% adjusted for currency) and
EBITDA margins of 7.4%. Africa region reported revenue growth of 47%
with inclusion of Darling operations and margins of 26%.
 Management Call takeaways: 1) Increased rural penetration aided by
distribution synergies post merger of GHPL have supported strong
domestic sales growth for soaps and household insecticides, with GCPL
growing ahead of industry growth in both these segments 2) Domestic
hair color business for GCPL grew lower than industry growth during the
qtr given stiff competition, 3) Soap category may need more price hikes
given high palm oil prices, 4) Overseas operations should benefit from
sustained investments to grow top-line in all the geographies and in
Africa particularly from synergistic gains from Darling acquisition.