Godrej Consumer Products - 4QFY13 Results Update - Motilal Oswal

- Godrej Consumer's (GCPL) 4QFY13 consolidated results are below estimates due to sharp margin contraction in international and domestic business. Sales grew 30% to INR17.15b (est INR16.39b), while EBITDA margin declined 260bp to 16% (est 19.1%) and adj PAT grew 22.4% to INR2.05b (est INR2.2b).

- Consolidated sales growth of 30% to INR17.15b (est INR16.39b) was led by 19% organic sales growth; 18% growth in Indian subcontinent business and 23% growth in international business.

- Gross margin was up 150bp to 55.1%; 120bp increase in ad spends to 9.5% and 280bp increase in other expenditure to 19.6% dragged EBITDA margin down by 260bp to 16% (est 19.1%).

- India business reported sales of INR9.2b, up 18% YoY, driven by Home Insecticide (up 26%) and Hair Care (up 27%), while Soaps posted 17% sales growth (volume growth of 4%). Hair Colors performance has shown significant improvement post the relaunch of Expert. Hair Colors has posted 2x category growth and outperformed the category after many quarters.

- Stand-alone gross margin expanded 340bp to 54.5% on account of correction in palm oil prices and significant mix improvement due to strong growth in Hair Colors and Home Insecticides. However, EBITDA margin declined 115bp YoY at 18.3%, led by higher ad spends (up 120bp) and other exp (up 500bp).

- International sales grew 49% to INR7.7b (23% organic growth) led by Megasari and acquisitions. EBITDA grew 8%; margin declined 250bp to 16.2% due to contraction in profitability across the geographies on country specific issues.

- Valuation and view: Despite the margin miss v/s our expectations, we retain estimates as we expect advertising spends to normalize in FY14E. The stock trades at 27x FY14E EPS of INR26.3 and 21.8x FY15E EPS of INR32.5. We like GCPL's sustained share gains in HI category in India, turnaround in its Hair Colors performance and continued robust performance in Indonesia (45% of international business). Decline in PFAD prices is a tailwind. Valuations at lifetime high factor the positives, in our view. Maintain Neutral with a target price of INR800 (25x FY15E EPS).

Source : Equity Bulls

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