Godrej Consumer Products - Result Update 1QFY2014 - Angel Broking

Godrej Consumer Products Ltd (GCPL), in its 1QFY2014 results, reported a healthy top-line growth of 23.9% yoy to Rs. 1,720cr. However, the OPM disappointed, declining by 149bp yoy, impacted by higher advertisement and promotion (A&P) expenditure and lower margins in international operations.

Key highlights of the quarter: GCPL's domestic business grew by 19%. Home care, Soaps and Hair Care segments posted a revenue growth of 24%, 13% and 32% yoy respectively. Despite a 410bp yoy increase in gross margins (aided by fall in palm oil prices), the domestic OPM declined by 55bp yoy due to a 74% yoy increase in advertising expenditure. The company's international business posted a top-line growth of 30% yoy to Rs. 830cr. Indonesia, African, Latin American and European businesses posted a top-line growth of 17%, 49%, 21% and 59% respectively. Sales growth was impacted by depreciation of currencies in South Africa, Argentina and Indonesia. The OPM of the international business also fell by 240bp yoy. The OPM of the Indonesian business fell 260bp yoy to 15% due to contract manufacturing done at break-even margins (for one year) for divested business and 58% yoy increase in wages due to the government regulation on minimum wages and 33% increase in fuel costs. The OPM of the African business declined by 570bp yoy mainly due to depreciation of South African Rand.

Outlook and valuation: Going ahead we expect GCPL's consolidated top-line and bottom-line to grow at a CAGR of 18.8% and 18.9% over FY2013-15E. At the current market price, the stock is trading at 29.4x FY2015E consolidated earnings. We maintain our Neutral rating on the stock.

Source : Equity Bulls

Keywords