Godrej Consumer- Led By Consolidation, Accumulate : Emkay

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Godrej Consumer Products

Led By Consolidation, Maintain Accumulate

ACCUMULATE

CMP: Rs 421                                       Target Price: Rs 447

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n     Godrej Consumer Products (GCPL) Q2FY11 performance exceeds expectation – APAT growth of 40% yoy to Rs1.3 bn

n     New drivers like GHPL and Megasari reported strong traction, erstwhile drivers Africa, UK and Standalone operations witness pressures

n     Upgrade growth assumptions for GHPL and Megasari, Downgrade growth assumptions for Keyline

n     Upgrade earnings by 7% for FY11E (Rs19.5/Share) and FY12E (Rs20.3/Share) – Maintain ‘ACCUMULATE’ rating with revised target price of Rs447/Share

GCPL Q2FY11 performance exceeds expectation - APAT growth of 40.0%

yoy to Rs1.3 bn

GCPL Q2FY11 APAT performance exceeds expectation – APAT growth at 40.0% yoy

to Rs1.3 bn buoyed by lower interest costs and tax provisions. Other key highlights of

Q2FY11 results are (1) 66.9% yoy growth in revenues to Rs9.6 bn- led by 100%

consolidation of GHCL and consolidation of acquired business of Megasari, Tura and

Issue (2) 58.4% yoy growth in operating profit to Rs1.8 bn and (3) 100 bps reduction in

operating margins from 19.8% to 18.8%. Q2FY11 performance at revenues and

operating profit meets expectation, whereas APAT stood ahead of expectation.

New drivers like GHPL & Megasari reported strong traction, but erstwhile

drivers Africa, UK and standalone operations witness pressure

Q2FY11 performance has few flags and grey areas. Ideally, the new growth drivers

have recorded strong traction; erstwhile drivers have recorded subdued performance.

¾ Indonesian acquisition ‘Megasari’ recorded revenues of Rs1.8 bn and Ebidta of

Rs0.3 bn. On like-to-like basis ‘Megasari’ grew by 30% outpacing industry growth.

¾ GHPL straddling in home care segment in India recorded revenues of Rs3.3 bn and

Ebidta of Rs0.6 bn. On like-to-like basis GHPL grew 38% yoy beating industry growth

of 12% yoy.

¾ Standalone operations registered 0.5% yoy decline in revenues to Rs3.3 bn. Strong

+20% yoy growth in Hair Color segment was offset by 10% decline in Soap segment.

¾ ‘Keyline’ was impacted by high base effect, hence recorded revenues of Rs0.5 bn

and Ebidta of Rs50 mn

Cost pressure in ‘Soaps’ segment only, hence not revising Ebidta margin

assumptions

Rise in vegetable oil prices has led to material cost pressure in Soaps segment. However,

GCPL would implement select price increases to maintain trade-off of material cost

pressures and subdued category growth. However, other segments of home care, toiletries

and hair color are not witnessing serious material cost pressures. We have retained our

Ebidta margins assumptions of 18% FY11E and FY12E.

Fine-tune earnings estimates, Maintain ACCUMULATE rating

Post H1FY11, we have factored for lower interest expenditure and higher other income. We

have also upgraded our growth assumptions for GHPL and Megasari to factor robust

growth recorded in H1FY11. Consequently, we have upgraded our FY11E and FY12E

earnings by 7%. We maintain ‘ACCUMULATE’ rating with revised target price of

Rs447/Share.