Godrej Consumer- Robust quarter, in line with estimates :: Religare

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Godrej Consumer Products Ltd
Robust quarter, in line with estimates
Godrej Consumer Products (GCPL) has reported Q2FY11 sales/EBITDA/adj.
PAT growth of 66%/51%/40%, in line with our estimates of 62%/58%/39%.
The consolidation of its 100% stake in Godrej Household Products (GHPL) and
of acquisitions (Megasari, Tura, Argencos, Issue group) augmented the
company’s inorganic growth. GCPL’s sales were driven by strong growth in
GHPL, the domestic hair colour business and Megasari, whereas the domestic
soaps and African businesses have underperformed during the quarter. Overall
EBITDA margins for GCPL declined by 170bps YoY mainly on account of lower
margins in the international business and rising vegetable oil prices. Adjusted
PAT was in line with our estimates, growing 40.2% YoY to Rs 1.3bn. We roll
forward our valuations from March ’12 to September ’12 earnings, leading to a
revised price target of Rs 460 (from Rs 420 previously). We maintain our HOLD
rating on the stock.



Net sales up 66% YoY: GCPL’s net sales grew 65.5% YoY to Rs 9.5bn, in line
with our estimates. The domestic business reported an increase of 32% to
Rs 6.2bn, primarily led by 100% consolidation of GHPL in the current quarter (as
against 49% in June–September ’09). The GHPL business reported sales growth
of 38% YoY on a like-to-like basis for the quarter and an increase in household
insecticides market share to 36.2% from 32.7% in Q2FY10, led by product
innovation and marketing initiatives. International business sales for the quarter
were at Rs 3.3bn (a growth of 205% driven by acquisitions), with the business
now constituting ~35% of GCPL’s consolidated sales. The South African business
grew at 8% whereas Keyline declined by 8%, owing to a weaker currency (GBP).
Revenue from the domestic soaps business dipped 10% YoY mainly on account
of a higher base and lower industry growth (3% value and 2% volume growth) in
an increasingly competitive market. Hair colour grew at 20% (volumes up 12%),
ahead of the industry run-rate of 15%.

EBITDA rises 51% YoY: EBITDA grew 51% YoY to Rs 1.7bn with margins
declining by 170bps YoY to 17.7%. Gross margins dipped 130bps YoY to 51.5%
mainly impacted by an increase in vegetable oil prices. A&P expenses also
increased by 140bps YoY to 10.3% while personnel costs declined by 160bps on
account of lower provisions for variable remuneration. Adjusted PAT rose 40.2%
YoY to Rs 1.3bn.
Maintain HOLD with revised Sep ’11 price target of Rs 460: We roll forward our
valuations for GCPL from March ’12 to September ’12, arriving at a
September ’11 price target of Rs 460 on the stock. We maintain a HOLD rating
and recommend entering the stock at Rs 380–385 levels.