Godrej Consumer Products Q4FY11: Healthy top-line growth but subdued margins; higher other income pushes up PAT growth::JPMorgan

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Godrej Consumer Products
Limited
Neutral
GOCP.BO, GCPL IN
Q4FY11: Healthy top-line growth but subdued
margins; higher other income pushes up PAT growth


• Higher other income leads to good Q4FY11; margins disappoint.
GCPL reported Net Sales, EBITDA and PAT growth of 96%, 65% and
54%, respectively, for Q4FY11. Given a host of acquisitions done over
last year, consolidated results for the company are not comparable on a
y/y basis. While sales growth was marginally better than estimates,
EBITDA margins (-330bp y/y) came in lower than expectations. Higher
other income (+195% y/y, includes Rs100mn of interest accrued on
ESOPs) led to earnings coming in 5% ahead of estimates.

• Domestic sales rise 17% y/y (LTL) driven by 13%, 18% and 17%
respective sales growth for soaps, hair color and household insecticides
(HHI) during Q4FY11. Volume growth stood at 9%, 11% and 17%,
respectively, for them, while price increases across soaps and hair color
were c4% and c6%. Steady volume growth, more price hikes for soaps
and HHI (2-3% already undertaken since Apr’11, coupled with new
variant launches across segments, should support growth rates in FY12.
While market share trends remain weak for soaps (-30bp q/q) and hair
color (-70bp q/q), HHI witnessed share gains (+270bp q/q, +420bp y/y).
• Overseas operations: A mixed bag. Megasari posted a healthy
performance, registering 20%+ sales growth and EBITDA margins of
17% during Q4FY11. Latin American operations posted strong sales
growth of 30%+ and EBITDA margins of 14%. However, performance
of Keyline (flat sales growth, subdued margins of 10%) and African
operations (est LTL growth of 5-6% y/y) was weak. Management
highlighted weak economic growth and increased local competitive
pressures in Africa to be the reasons for the tepid performance.
• Management comments on revenue growth outlook. GCPL expects to
maintain 25-30% revenue CAGR over next five years, of which organic
growth will be 15-20% and about 10% would come from inorganic
growth. Segment wise comments include: 1) Growth rates to pick up for
soaps and hair color in 1HFY12 aided by price increases and a favorable
base, 2) GHPL to maintain healthy volume-led sales growth rate of 17-
20%, and 3) Megasari (Indonesia) and Latin American operations likely
to witness healthy sales growth of 15-20% in FY12.