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Godrej Consumer Products Limited Neutral
GOCP.BO, GCPL IN
Growth taking precedence over margins
GCPL’s 1Q FY12 results illustrate the need for higher investments to
sustain healthy volume growth rates in domestic and overseas markets.
While top-line growth trends were fairly good across most categories and
geographies, the consolidated EBITDA margin declined 360bp y/y on
account of higher A&P spending and employee costs besides increased
RM (palm oil) costs for domestic operations. We believe that higher
exposure to overseas markets and downside risk to margins (and earnings)
will likely keep the stock rangebound in the near term. While overseas
operations do provide revenue growth opportunities, we believe they may
not merit similar valuations as the Indian operations given the lower
margin/return profile for most and risks (currency, political, execution etc)
associated with them; thus we believe the lower valuation multiple
(relative to Indian FMCG sector) for GCPL is justified. Maintain Neutral.
Domestic sales rose 20% y/y driven by 17%, 19% and 40% respective
sales growth for soaps, hair color and household insecticides (HHI)
during 1Q FY12. Volume growth stood at 9-10% (off a weak base), 8-
9% and 37%, respectively, for these segments, while price increases
across soaps and hair color were 8-10%. EBITDA declined 2% y/y
with margins dropping 330bp y/y on account of weak gross margins
(-150bp y/y), higher ad spends (+120bp y/y) and higher other expenses
(+140bp y/y, due to higher promotional spends).
Overseas: A mixed bag: Sales growth was robust across Indonesia
(+19% y/y), Latin America (+22% y/y) and Africa (ex-Kinky). However
investments for new launches in Indonesia and distribution expansion in
more Latin American markets weighed on margins.
Earnings estimate and PT revisions: We reduce EPS for FY12E and
FY13E by 5% and 2% respectively as we build in lower margin
estimates. Our estimates do not include any contribution from the
Darling Group acquisition yet (in view of limited disclosures), but
management guidance implies 3-4% upside to our FY12 EPS estimate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godrej Consumer Products Limited Neutral
GOCP.BO, GCPL IN
Growth taking precedence over margins
GCPL’s 1Q FY12 results illustrate the need for higher investments to
sustain healthy volume growth rates in domestic and overseas markets.
While top-line growth trends were fairly good across most categories and
geographies, the consolidated EBITDA margin declined 360bp y/y on
account of higher A&P spending and employee costs besides increased
RM (palm oil) costs for domestic operations. We believe that higher
exposure to overseas markets and downside risk to margins (and earnings)
will likely keep the stock rangebound in the near term. While overseas
operations do provide revenue growth opportunities, we believe they may
not merit similar valuations as the Indian operations given the lower
margin/return profile for most and risks (currency, political, execution etc)
associated with them; thus we believe the lower valuation multiple
(relative to Indian FMCG sector) for GCPL is justified. Maintain Neutral.
Domestic sales rose 20% y/y driven by 17%, 19% and 40% respective
sales growth for soaps, hair color and household insecticides (HHI)
during 1Q FY12. Volume growth stood at 9-10% (off a weak base), 8-
9% and 37%, respectively, for these segments, while price increases
across soaps and hair color were 8-10%. EBITDA declined 2% y/y
with margins dropping 330bp y/y on account of weak gross margins
(-150bp y/y), higher ad spends (+120bp y/y) and higher other expenses
(+140bp y/y, due to higher promotional spends).
Overseas: A mixed bag: Sales growth was robust across Indonesia
(+19% y/y), Latin America (+22% y/y) and Africa (ex-Kinky). However
investments for new launches in Indonesia and distribution expansion in
more Latin American markets weighed on margins.
Earnings estimate and PT revisions: We reduce EPS for FY12E and
FY13E by 5% and 2% respectively as we build in lower margin
estimates. Our estimates do not include any contribution from the
Darling Group acquisition yet (in view of limited disclosures), but
management guidance implies 3-4% upside to our FY12 EPS estimate.
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