Maintain REDUCE on Godrej Consumers - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

GCPL's 2QFY21 was healthy with revenue/EBITDA growth of 11/19% YoY (HSIE 11/12%). Domestic revenue/EBITDA grew by 11/17% YoY, while International revenue/EBITDA grew by 11/24% YoY. Domestic volume growth was at 5%, with market share gain. Secondary growth was ahead of primary growth for HI and Soaps, reflecting healthy demand at the consumer level. Hair colours witnessed sequential recovery, but overall demand remained muted during the quarter. Indonesia and LATAM led the International margin expansion. We expect healthy performance in 2HFY21, driven by demand and margin recovery in international business. We increase our EPS estimates for FY21/FY22/FY23 by 5/3/2%. We roll forward our target price to Sep-22E EPS and value GCPL at 35x P/E to derive a target price of Rs 663. Maintain REDUCE.
In-line revenue growth: Consolidated revenue grew by 11% YoY (-1% in 2QFY20 and -1% in 1QFY21), in line with our estimates. Recovery was visible across both domestic and international markets. Soaps/HI clocked 18/4% YoY growth while Hair colours declined by 5% YoY. Hygiene and value for money products drove domestic recovery with 27/22% YoY growth. GCPL continued to scale up new launches in hygiene and drove penetration through improved rural distribution. GUAM clocked sharp recovery with 10% YoY cc growth after 3% YoY cc decline in 1QFY21. Indonesia/Others (LATAM) posted cc growth of 3/46% YoY.

Beat on margin: GM dipped 61bps YoY (+381bps in 2QFY20 and -286bps in 1QFY21), as value for money products gained salience. Employee expenses remained flat YoY, ASP decline 2% YoY and other expenses grew by 9% YoY. EBITDA margin expanded by 156bps YoY (+362bps in 2QFY20 and +77bps in 1QFY21), ahead of the expectation of 30bps expansion. EBITDA clocked 19% YoY growth (HSIE 12%). PBT grew 22% YoY, while PAT grew 11% YoY due to lower tax rate in the base quarter.

Call takeaways: (1) Hair colours are expected to gain traction in the near term; (2) palm oil inflation should not impact GM significantly; (3) Africa margins should improve in 2HFY21 with better product mix, (4) secondary growth of HI and Soaps were ahead of primary growth.

Shares of GODREJ CONSUMER PRODUCTS LTD. was last trading in BSE at Rs.670.4 as compared to the previous close of Rs. 669.95. The total number of shares traded during the day was 84117 in over 4198 trades.

The stock hit an intraday high of Rs. 682.25 and intraday low of 663.65. The net turnover during the day was Rs. 56441728.

Source : Equity Bulls

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