Godrej Consumer - Domestic Disappoints; Margins to Perk up Further; Result Update Q2FY15 :: Edelweiss, link

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Godrej Consumer Products’ (GCPL) Q2FY15 revenue and adjusted PAT came in line with our estimates. Key positives were: (i) strong 13% YoY (2% YoY in Q1FY15) recovery in personal wash; and (ii) 12% YoY organic constant currency sales surge in international division led by Indonesia and LatAm. Key negatives were: (i) subdued 2% YoY growth (9% YoY in Q1FY15) in household insecticides (HI) affected by delayed rains; and (ii) slower growth in hair colour (HC) of 9% YoY (slowest in 9 quarters). Benefits of calibrated price hikes and cost saving initiatives have started reflecting by way of improvement in international margin; benign raw material prices will bolster domestic margin in H2FY15. Progress of entry in premium HC, hand wash and face washes remains key monitorable.

Soaps cover up for tame HI and HC; international organically robust

Marked turnaround in soaps with 13% YoY growth (HUL reported 11.1% growth in S&D) led by Cinthol and recovery in Godrej No.1 made up for slightly disappointing HI and HC. HI growth slowed to 2% YoY (lowest in past 18 quarters); the segment is likely to revive in Q3FY15 due to recovery in monsoon and favourable base. Adverse currency impact overshadowed good international performance led by Indonesia and LatAm, where organic margins improved 220bps and 560bps YoY, respectively.

Q2FY15 conference call: Key takeaways

GoodKnight Fast Card has become a INR1bn brand in 11 months of launch in India. Rural growth continues to outpace urban growth for GCPL. H2 is expected to better than H1 led by favourable base and benign raw material prices. The company has other products in the pipeline in HC which have the potential to be as strong as Expert Crème hair colour. GCPL’s HC segment  surged 3x (earlier 1.5x) the category’s growth rate.

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https://www.edelweiss.in/research/Godrej-Consumer--Domestic-Disappoints;-Margins-to-Perk-up-Further;-Result-Update-Q2FY15/27436.html