Maintain ADD on Godrej Consumers - In-line revenue; international margin shines - HDFC Securities

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

GCPL's 3QFY21 was a mixed bag with in-line revenue but a marginal miss in EBITDA. Domestic revenue/EBIT grew by 11/5% YoY, while International revenue/EBIT grew by 11/21% YoY. Domestic volume growth was at 7%, with strong market share gains, specifically in soaps. Recovery in discretionary demand drove the growth in Hair Colours while an increased focus on cleanliness aided soaps. HI was dragged by a weak performance in the burning format, although aerosol, electric and non-mosquito portfolio posted strong growth. GCPL continued to improve its performance in GUAM (17% cc growth) and LATAM & SAARC (35% cc growth). GUAM and LATAM led the international margin expansion. The company is focusing on expanding the addressable market for the India business along with improving performance in ex-Indonesia geographies. We marginally increase our EPS estimate for FY22 while maintaining it for FY23. We value GCPL at 38x P/E on Mar-23E EPS to derive a target price of Rs 786. Maintain ADD.

Healthy domestic growth, GUAM and LATAM standout: Revenue grew by 10% YoY (+2% in 3QFY20 and +11% in 2QFY21) in-line with our estimates. India revenue saw 11% YoY growth (+1% in 3QFY20 and +11% in 2QFY21) with 7% YoY vol growth. HI/Soaps/Hair Colour grew by 7/15/14%. HI, Hygiene and Value For Money products (81% of portfolio), delivered 14% growth. HI was at 5% growth (7% in India); Hygiene (incl soaps) at 19% and value for money clocked 22%. Company continued to gain market share for soaps. International revenue was up 8% YoY (cc +11% YoY), led by GUAM which clocked 17% YoY cc growth and LATAM & SAARC, which grew by 35% YoY. Indonesia disappointed with cc revenue decline of 2% YoY.

Weak India margin, International margin shines: India GM was down by 271bps YoY to 57% (+15bps in 3QFY20 and -109bps in 2QFY21). Employee/A&P expenses were up by 6/11% YoY while other expenses declined by 3% YoY. India EBITDA/EBIT grew by 7/5% while International EBIT was up by a strong 21% YoY. GUAM/LATAM saw sharp 190/900bps YoY expansion in EBITDA margin. Consolidated EBITDA saw growth of 13% YoY (HSIE 15%). APAT was up by 12% YoY (HSIE 15%) to Rs 4.9bn.

Call takeaways: (1) Burning format was a drag on the HI portfolio while other segments clocked strong growth; (2) hygiene growth was driven by a structural change among consumers with increased focus on cleanliness; (3) GCPL has continued to gain market share in soaps and its is now the second largest player; (4) the company has targeted reaching 200k retail stores and it is well on track to do so; (5) GT has 33% mix in India while it is 50% in Indonesia.

Shares of GODREJ CONSUMER PRODUCTS LTD. was last trading in BSE at Rs.752.8 as compared to the previous close of Rs. 758.4. The total number of shares traded during the day was 17240 in over 596 trades.

The stock hit an intraday high of Rs. 767.3 and intraday low of 752.8. The net turnover during the day was Rs. 13097935.

Source : Equity Bulls

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