Godrej Consumer Products - Core Business Delivers Distinguished Show; Result Update Q4FY15 ::Edelweiss

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Godrej Consumer Products’ (GCPL) Q4FY15 revenue and PAT came in line with our estimates. Key positives include: (i) third consecutive quarter of double-digit growth in personal wash at 15% YoY (11% in Q3FY15); (ii) 11% YoY surge in household insecticides (HI) on base of 17% YoY (16% YoY in Q3FY15 on 8% YoY base) with highest ever overall exit market share; (iii) robust 14% YoY international business organic constant currency growth (though muted by currency translation); and (iv) EBITDA margin expansion in both domestic (up 80bps YoY led by 329bps YoY gross margin expansion) and international (70bps YoY led by Indonesia and Latin America) businesses. Minor negatives were the moderation in hair care (HC) growth at 12% YoY, albeit on a soft base, and steep decline in unbranded sales in India due to tepid exports (impacted by ISIS-related issues in Yemen and currency depreciation in Angola).

Double-digit growth across segments; margins expand

India business branded net sales jumped 12% YoY led by double-digit spurt across categories. Standalone business gross margin catapulted 451bps YoY with EBITDA margin improvement of 64bps YoY, despite A&P spending rising 581bps YoY. We expect gross margin to improve for most consumer companies in Q4FY15, which could lead to higher ad spends in FY16. Global competitor, Reckitt Benckiser (in HI space with Mortein), indicated improving trend in India.

Key highlights from conference call

GCPL’s India branded home and personal care (HPC) grew ~1.4x category growth. The company expects gradual recovery in FY16. Rural growth (at 17% YoY) outpaced urban growth (at 9% YoY) for GCPL. Muted constant currency growth of 6% YoY in Indonesia was due to de-stocking by modern trade retailers and floods. Steep currency depreciation in Africa led to margin dip, but helped market share gains. Growth in Africa will be led by ~USD2bn opportunity in wet hair and HI space.

LINK
https://www.edelweiss.in/research/Godrej-Consumer-Products--Core-Business-Delivers-Distinguished-Show;-Result-Update-Q4FY15/28879.html