Add Godrej Consumer Products - Results in line; up our target price on rollover - BRICS

Results were in line with our estimates on all counts with a 31% yoy growth in revenues at Rs13.2bn (vs. estimate of Rs13.5bn), 42% growth in operating profit at Rs2.5bn (estimate Rs2.5bn), 160bps expansion in operating margins to 18.9%, and a 21% rise in APAT to Rs1.7bn (estimate Rs1.7bn). We have revised our FY13 EPS estimates by 3.6% to Rs22.6 and introduced FY14 estimates at Rs26.5. We have rolled over our valuations to FY14 to arrive at a target of Rs583. Maintain Add.

Growth driven by both domestic and international businesses:

Growth in revenues was driven by a 20% jump in the domestic business (to Rs8.0bn) and around 51% growth in the international business. Operating profit increased 42% yoy to Rs2.5bn helped by a 240bps decline in input costs and 200bps drop in other expenses. However, a 200bps rise in employee expenses and 90bps increase in A&P spends partially hampered operational performance. Consequently, operating margin expanded 160bps to 18.9% (in line with estimated 18.8%).

Revenue growth across categories:

Growth in domestic business was driven by – a 28% growth in home insecticides (vs. market growth of 9%), a 30% growth in soaps (vs. 20%), and a 13% jump in hair color (vs. 22%). Though soaps and HI performance was good, hair color continues to lag.

Soap business surprised positively:

We were surprised by strong performance in domestic soaps-17% volume growth (vs. market growthof 45%) - and attribute it to lower growth in the base quarter, calibrated price hikes, new launches and re-launches, and higher advertising and promotional activities.

Revised estimates, maintain rating:

We have revised our FY13 EPS estimates by about 4% and remain positive on GCPL and believe it is in a sweet spot to leverage recent acquisitions. Its strategy to tap new opportunities (domestic and international) will boost its future operational performance. We arrive at our new target of Rs583 (from Rs458) by assigning 22x P/E (unchanged) to our new FY14 earnings.

Home insecticide business performance was in line:

As mentioned in our previous note "Growth buzzing due to mosquito repellents" – we were expecting high growth for GCPL's home insecticide in Q4 and the growth was 3x vs. industry.

Hair color business yet to perform:

This recorded 13% growth – lower than the category growth of 22%. Higher competition continues to restrict growth.

International business performance was strong:

It recorded 51% sales growth and EBITDA margins were impressive across geographies.

Source : Equity Bulls

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