Maintain ADD on Godrej Consumers - Inspiring show; remain constructive - HDFC Securities

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

GCPL delivered an in-line revenue while EBITDA margin was a beat. Consolidated revenue grew 24% YoY (HSIE 22%) with domestic revenue growing by 19% (HSIE 16%) and international revenue growing by 30% (HSIE 29%). Domestic revenue posted 12% two-year revenue CAGR. Domestic volume growth was at 15%, two-year CAGR at 9% vs. Britannia's 13%, Dabur's 10%, Nestle's 6%, Marico's 2%, Emami's 2%, Colgate's 0% and HUL's 0%. GM contracted by 210bps YoY to 52.2% due to a lag between increase in input cost and price increases (domestic). The company managed to expand its EBITDA margin by 80bps YoY to 21.1% (HSIE 20.6%). With new management at the top and focus on key growth areas such as household insecticides (HI), personal wash & hygiene, and hair care, we see large growth potential for the company. We increase our EPS estimate by 2/3/3% for FY22/23/24. We value the stock at 42x on Jun-23 EPS to derive a TP of INR 1,000. Maintain ADD.

Continued strong revenue performance: Consolidated revenue was up 24% YoY (-1% in Q1FY21, 27% in Q4FY21, 22% HSIE) with domestic growing 19% YoY (5% in Q1FY21, 35% in Q4FY21, 16% HSIE) and international growing 30% YoY (-8% in Q1FY21, 19% in Q4FY21, 29% HSIE). Domestic volume growth was at 15% YoY. Indonesia/GUAM/LATAM and SAARC grew its revenue by 1/59/26% YoY (9/-22/-4% in Q1FY21) with cc growth at 0/60/48% YoY. Home care/personal care posted 14/29% YoY revenue growth. Home care sustained broad-based growth across premium formats and burning formats. In personal care, personal wash and hygiene continued momentum with strong double-digit sales growth; 2-year CAGR in double-digits. It continued to gain market share in soaps and hair colour.

Strong EBITDA margin expansion: Gross margin contracted by 210/359bps YoY/QoQ to 52.2% (-286bps in Q1FY21 YoY, -198bps in Q4FY21 YoY), mainly on account margin pressure for India business. Employee cost was up by 11% YoY (1% in Q1FY21), A&P 41% YoY (-46% in Q1FY21) and other expenses 9% (-2% in Q1FY21). EBITDA margin expanded by 80bps YoY (77bps Q1FY21, - 108bps Q4FY21) to 21%, slightly more than our estimates. Margin expansion was led by the op lev seen in the international business and partially in the India business. EBITDA grew by 29% YoY vs. HSIE 23% growth. Operating EBITDA margin for Indonesia/GUAM/Latin America and SAARC came in at 23/10/14% vs 24/-2/11% in Q1FY21.

Call takeaways: (1) The company saw input inflation from palm oil and has taken 4-5% price hikes in Q1FY22. (2) Indonesia saw a better July, but macroeconomics aren't too strong. (3) Sequential margin drop was due to the brand investment. (4) The company built up inventory to avoid supply disruption in the second wave. (5) Nigeria is doing well in HI. (6) The company will focus on sustainable pricing with double-digit growth for FY22. (7) The company has elevated Mr. Sameer Shah (from head of finance) to CFO, post the resignation of the former CFO.

Shares of Godrej Consumer Products Ltd. was last trading in BSE at Rs. 976.85 as compared to the previous close of Rs. 988.75. The total number of shares traded during the day was 32749 in over 1849 trades.

The stock hit an intraday high of Rs. 1003 and intraday low of 971.9. The net turnover during the day was Rs. 32197632.

Source : Equity Bulls

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