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India Equity Research Reports, IPO and Stock News
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GCPL is present in 3 segments namely soaps, household insecticides & hair
colours. In each of these segments the company is a market leader or at
No. 2 position. The company has been continuously investing behind its
brands to gain ground over competition & have created super brands over
the decade. The company’s 3x3 strategy (presence in 3 continents and 3
categories) shows its clear focus to attend to its strengths rather than
diversify into the unknown. Cross synergies from continents will enable
growth across geographies & segments & help the company achieve its
target of 20%+ topline grow for next 3-4 years.
1) Growth Drivers…
a. Cross synergies of distribution network in standalone business with
the amalgamation of Sara Lee operations.
b. With a penetration of 25-30% in rural India the company has scope
to increase penetration in rural India for household insecticides.
c. Growth returning to hair colour segment in India by leveraging on
crème based sachet technology from Latin America business.
d. The structural change in demand from unorganized to organized in
soaps segment in rural India to support volume growth.
e. Africa, the largest contributor to consolidated revenues to see
inorganic growth from full year consolidation of Darling Group, while
organic business growth of is expected at 15%+. The company is
expected to launch of insecticides in late FY13 early FY14 in the
African continent.
f. Latam business to grow on the back of increased penetration
through geographical diversification, product innovation, &
consolidation of Chilean acquisition.
g. Asia (ex-India) (i.e Indonesia) business to grow on the back of
disruptive launch of Magic paper which is eating into the coil market.
h. Cross launches across geographies to yield growth. The company
plans to launch Stella (air care brand) from Indonesian operations in
India and launch insecticides in Africa.
2) Profitability Drivers…
a. Premiumisation across hair colour segment.
b. Increasing share of vaporizer & aerosols to improve pricing power.
c. Conscious effort to acquire companies with better operating profit
margins than standalone business to prop up profitability.
d. With the acquisition of fully integrated Darling group in Africa to
enable in-house sourcing for Kinky and improve margins in that
geography.
e. Chilean acquisition at 20%+ margins to improve margins in Latam
business.
3) Increased distribution, product innovation and brand investment to
support growth.
4) Synergistic benefits from global operations to auger well for the
company.
5) Temasek Investment helping to lower debt levels. Debt to net worth
ratio to come down to 0.6 by FY13.
Risks:
o Business risks of synergies across geographies – Hired
professionals & management native to the country.
o Forex risk exposure to debt & translation – Team of specialist
managing hedging exposure for volatility management.
o Risk of rising competition in hair colour in India – Aggressive ad
campaign to gain back share coupled with premiumisation of portfolio.
o Volatility in raw material costs.
Valuations:
The company is on a healthy growth trajectory for the next few years on the
back of its organic growth, cross launches across geographies, & product
innovation. Profitability to improve as the company moves to premiumise its
portfolio & indulge in cost synergies. We like the vision of the management to
grow the business while investing in emerging economies. It plans to focus on it 3
mainstay segments where it commands market leadership. At the current CMP of
`450.5 the stock trades at 21x& 20x FY12 & FY13 expected EPS of `21 (includes
`5 exceptional item) & `23 respectively. We recommend the investors to
“Accumulate” the stock for 15%+ upside from these levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GCPL is present in 3 segments namely soaps, household insecticides & hair
colours. In each of these segments the company is a market leader or at
No. 2 position. The company has been continuously investing behind its
brands to gain ground over competition & have created super brands over
the decade. The company’s 3x3 strategy (presence in 3 continents and 3
categories) shows its clear focus to attend to its strengths rather than
diversify into the unknown. Cross synergies from continents will enable
growth across geographies & segments & help the company achieve its
target of 20%+ topline grow for next 3-4 years.
1) Growth Drivers…
a. Cross synergies of distribution network in standalone business with
the amalgamation of Sara Lee operations.
b. With a penetration of 25-30% in rural India the company has scope
to increase penetration in rural India for household insecticides.
c. Growth returning to hair colour segment in India by leveraging on
crème based sachet technology from Latin America business.
d. The structural change in demand from unorganized to organized in
soaps segment in rural India to support volume growth.
e. Africa, the largest contributor to consolidated revenues to see
inorganic growth from full year consolidation of Darling Group, while
organic business growth of is expected at 15%+. The company is
expected to launch of insecticides in late FY13 early FY14 in the
African continent.
f. Latam business to grow on the back of increased penetration
through geographical diversification, product innovation, &
consolidation of Chilean acquisition.
g. Asia (ex-India) (i.e Indonesia) business to grow on the back of
disruptive launch of Magic paper which is eating into the coil market.
h. Cross launches across geographies to yield growth. The company
plans to launch Stella (air care brand) from Indonesian operations in
India and launch insecticides in Africa.
2) Profitability Drivers…
a. Premiumisation across hair colour segment.
b. Increasing share of vaporizer & aerosols to improve pricing power.
c. Conscious effort to acquire companies with better operating profit
margins than standalone business to prop up profitability.
d. With the acquisition of fully integrated Darling group in Africa to
enable in-house sourcing for Kinky and improve margins in that
geography.
e. Chilean acquisition at 20%+ margins to improve margins in Latam
business.
3) Increased distribution, product innovation and brand investment to
support growth.
4) Synergistic benefits from global operations to auger well for the
company.
5) Temasek Investment helping to lower debt levels. Debt to net worth
ratio to come down to 0.6 by FY13.
Risks:
o Business risks of synergies across geographies – Hired
professionals & management native to the country.
o Forex risk exposure to debt & translation – Team of specialist
managing hedging exposure for volatility management.
o Risk of rising competition in hair colour in India – Aggressive ad
campaign to gain back share coupled with premiumisation of portfolio.
o Volatility in raw material costs.
Valuations:
The company is on a healthy growth trajectory for the next few years on the
back of its organic growth, cross launches across geographies, & product
innovation. Profitability to improve as the company moves to premiumise its
portfolio & indulge in cost synergies. We like the vision of the management to
grow the business while investing in emerging economies. It plans to focus on it 3
mainstay segments where it commands market leadership. At the current CMP of
`450.5 the stock trades at 21x& 20x FY12 & FY13 expected EPS of `21 (includes
`5 exceptional item) & `23 respectively. We recommend the investors to
“Accumulate” the stock for 15%+ upside from these levels.
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