Maintain REDUCE on Godrej Consumers - Weakness continues, exacerbated by Covid - HDFC Securities Institutional Research Desk

Mr. Varun Lohchab, Head Institutional Research, HDFC Securities

Godrej Consumers (Q4FY20): Weakness continues, exacerbated by Covid. Maintain REDUCE

(TP Rs 529, CMP Rs 534, MCap Rs 545bn)

GCPL saw 12% revenues decline across the board as lockdowns in India and GUAM disrupted prime selling days. Soaps and HI have a high dependence on sales during the last few days of March. GCPL was on track to deliver 5% volume growth in India before Covid-19 disrupted supply chain, leading to a 15% volume decline. However, co enjoyed the benefit of channel filling in the last 40 days (April/May) in India resulting in positive yoy growth. MGT is focusing on value proposition offers to consumer and consistent innovative launches to gain market share. However, our annual estimate for domestic/international captures such improvement. We maintain our EPS estimates for FY22. We value GCPL at 30x on Mar-22E EPS, deriving a TP of Rs 529. Maintain REDUCE.

Weak India volume growth: Net revenues declined by 12% yoy (-3% in 4QFY19 and +2% in 3QFY20) in line with our expectation. India revenue declined by 18% yoy (flat in 4QFY19 and +1% in 3QFY20) with 15% yoy volume dip. HI/Soaps/Hair Colours reported decline of 16/23/23% yoy. International revenue declined by 5% (-2% in cc). Indonesia/GUAM/Other geographies saw cc revenue growth of +6/-13/+23% yoy.

Miss in margins: GM dipped by 97bps yoy to 57.7% (-28bps in 4QFY19 and +44bps in 3QFY20) vs. exp of +52bps. Employee/A&P/Other expenses declined by 16/20/5% yoy. The dip in A&P was driven by a reduction in new product launches during the quarter. EBITDA margin dipped by 151bps yoy to 22.1% (-29bps in 4QFY19 and +10bps in 3QFY20). EBITDA declined by 18% yoy, India EBITDA was down by 23% and International by 6%. EBITDA margins for Indonesia/Other geographies expanded by 210/670bps yoy while GUAM declined by 670bps yoy.

Call & other takeaways: (1) GCPL's 70% portfolio saw market share gains, (2) India and Indonesia have posted growth in April 2020. Growth in India was driven by channel filling opportunities missed out in 4QFY20 (3) Co will ramp up launches in Hygiene category over the next few weeks, (4) Mgt expect pricing to be better in FY21 and value and volume growth will be close to each other, (5) Cash & equivalents are at Rs 14bn which is a slight improvement over Sep 2019 (Rs 13.3bn), (6) However, total borrowings for the co have also seen a slight increase at Rs 26.6bn vs Rs 25.5bn in Sep 2019.

Maintain REDUCE: GCPL's business will continue to be volatile due to high dependence on seasonal and competitive categories in India and high share of International business. We model 7/9% revenue/EBITDA CAGR for FY20-FY22E. We do not see any re-rating drivers in the near term. We maintain REDUCE rating.

Shares of GODREJ CONSUMER PRODUCTS LTD. was last trading in BSE at Rs.534.55 as compared to the previous close of Rs. 517.75. The total number of shares traded during the day was 58972 in over 3101 trades.

The stock hit an intraday high of Rs. 542.25 and intraday low of 523. The net turnover during the day was Rs. 31438494.

Source : Equity Bulls

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