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ACCUMULATE
CMP Target Price `440 `468
12 Months
Angel est. 860.1 176.7 20.6 127.9 % Diff 16.0 (19.2) (624bp) (49.9)
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Godrej Consumer (GCPL) posted mixed set of numbers for the quarter. Consolidated top-line growth was strong at 39.6% yoy, led by recent acquisitions; thus, this quarters numbers are not directly comparable to 1QFY2011 numbers. Domestic revenue growth stood at 21% yoy, aided by full consolidation of Godrej Household Products (GHPL). Reported earnings grew modestly by 94% yoy, aided by high extraordinary income due to the settlement of Sara Lee JV termination. We maintain our Accumulate rating on the stock. Robust inorganic growth: GCPL reported strong top-line growth of 39.6% yoy to `997.8cr, driven largely by the consolidation of recent acquisitions. Domestic business (including GHPLs additional 51% consolidation) registered growth of 21% yoy to `643cr. Soaps registered ~17% yoy growth and hair colour registered growth of 19% yoy during the quarter. International business revenue stood at `360cr, registering growth of 94% yoy. Reported earnings registered growth of 94% yoy to `239.3cr (`123.2cr). Outlook and valuation: GCPLs recent acquisitions have been in-line with its 3X3 strategy and enable the company to spread its footprint and grow inorganically. At the CMP of `440, the stock is trading at 21.2x FY2013E earnings of `20.8. We maintain an Accumulate rating on the stock with a target price of `478, based on 23x FY2013E EPS. Key financials (Consolidated)
Y/E March (` cr) Net Sales % chg Net Profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 67.3 5.9 19.3 7.5
3m (3.6) 17.8
1yr 4.7
3yr 32.2
29 261.8
FY2010 2,041 46.5 339.6 96.7 20.0 10.5 41.9 14.2 44.5 41.5 6.8 34.3
FY2011 3,643 78.5 481.6 41.8 17.6 14.9 29.6 8.2 38.4 25.0 4.4 25.0
FY2012E 4,196 15.2 585.3 21.5 19.5 18.1 24.3 6.5 38.7 20.9 3.7 18.9
FY2013E 4,681 11.6 672.4 14.9 19.9 20.8 21.2 5.5 28.0 23.7 3.2 16.3
Sreekanth P.V.S
022 3935 7800 Ext: 6841
sreekanth.s@angelbroking.com
(` cr)
400 200 -
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3Q11
4Q11
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Top-line (LHS)
Revenue of the international business revenue stood at `360cr (~`186cr), registering growth of 94% yoy, aided by full quarter of consolidation of recent acquisitions. International operations now contribute ~36% revenue to the consolidated top line of the company. GCPL recently acquired Darling Group Holdings, a company that is present across 14 countries in the sub-Saharan region. The company is a leader in hair care products in many countries where it is present.
(` cr)
1Q12
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
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1Q12
(%)
150.0
(%)
600
(` cr)
( %)
On a reported basis, the company reported 94.2% yoy growth, driven by extraordinary income. GCPL booked `175.2cr, as it received the mentioned amount as an exit compensation towards the termination of JV with Sara Lee.
(` cr)
160 110 60 10
1Q10
2Q10
3Q10
4Q10
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2Q11
3Q11
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PAT (LHS)
On the operating front, GCPL delivered a margin contraction of 346bp yoy on account of high staff costs, ad spends and other expenditure, which grew by 116bp yoy, 138bp yoy and 134bp yoy, respectively. These costs increased sharply on account of aggressive marketing initiatives, new product launches and consolidation of recent acquisitions. Management has indicated that it would spend aggressively on new product launches in all the categories in all regions. On the raw-material prices front, the company faired well as it was able to keep the gross margins under check. Gross margin during the quarter remained flat even though GCPL faces pressure as vegetable oil prices are still high and driven by crude prices.
(` cr)
(%)
20.0 10.0 -
50 30 10
1Q10
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OPM
Gross Margin
1Q12
(%)
70
1Q12
( %)
30.0 20.0
(` cr)
110 60 10
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
(10.0) (20.0)
(%)
50 30 10
1Q10
2Q10
3Q10
4Q10
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2Q11
3Q11
4Q11
1Q12
(%)
160
10.0
70
Africa: Sales from the African region registered growth of 26.5% yoy/decline of 3.4% qoq to `43cr (`34cr/`45cr). We estimate contribution of Tura, Rapidol and Kinky at `6cr, `16.5cr and `20cr, respectively. Operating profit for the quarter stood at `4cr. LatAm: LatAm business includes sales of both Issue Group and Argencos. During the quarter, GCPL recorded revenue of `56cr (declined on a qoq basis). The Issue Group and Argencos were merged operationally in 3QFY2011, led by the CEO of the Issue Group for the combined business. The merger will lead to significant purchase and distribution synergies going forward.
1QFY11 53 87 34 12 186
Investment rationale
EPS-accretive acquisitions to drive an 18% CAGR in earnings over FY201113E: Management has constantly reiterated that all recent international acquisitions have been EPS-accretive. Over FY201113E, we expect GCPL to post an 18% CAGR in earnings, driven largely by consolidation of the recent acquisitions. Dependence on soaps to decline, home care to emerge as the largest category: Over FY201113E, we expect contribution of personal wash (including soap) to total consolidated revenue at 2425% and home care to increase to 5051%, aided by consolidation of Megasari and complete consolidation of GHPL. We believe the shift in revenue mix is likely to help GCPL de-risk its dependence on the highly competitive soaps market and increase its focus on the high-margin, high-growth insecticides business. Synergistic benefits and cross-pollination opportunities hold upside risk: We believe there exists significant synergistic benefits in terms of distribution and supply-chain networks through integration of GHPL, which is likely to reflect over FY201112E. Moreover, GHPLs strong presence in Southern India complements GCPLs strong presence in Northern India extremely well, giving GCPL a balanced presence. Moreover, cross-pollination opportunities from its recent international acquisitions hold an upside risk to our estimates.
At the CMP of `440, the stock is trading at 21.2x FY2013E earnings of `20.8. We maintain our Accumulate rating on the stock with a target price of `478, based on 23x FY2013E EPS.
Reco
Reduce Neutral Reduce Accumulate Reduce Accumulate Neutral Neutral Reduce Reduce
Mcap (` cr)
29,886 5,771 13,360 19,426 9,966 14,232 72,356 158,863 9,923 40,914
CMP (`)
3,116 483 982 112 2,370 440 332 205 162 4,243
TP (R`)
2,904 869 119 2,163 478 147 3,483
Upside (%)
(7) (12) 7 (9) 9 (9) (18)
CAGR # Sales
17.3 17.3 14.9 21.6 17.3 13.4 12.5 17.6 12.0 16.1
FY13E
24.7 21.5 26.0 22.4 24.1 21.2 24.9 23.1 26.6 35.3
FY13E
2.7 1.0 4.3 3.3 2.8 3.2 2.7 5.1 2.7 4.8
FY13E
38.3 46.1 108.0 43.3 31.8 28.0 74.6 31.5 27.9 72.9
EPS
19.8 36.0 12.9 21.3 17.5 18.2 17.1 17.4 25.3 18.9
Dec-05
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Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
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10
Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days) 5.3 63.4 16.9 96.2 (4.4) 4.9 43.9 15.8 76.5 6.4 5.7 47.3 20.6 95.2 9.2 5.5 44.0 38.5 84.6 41.3 5.2 48.7 22.1 98.3 (0.2) 5.3 48.7 21.9 102.1 (4.8) 58.5 171.4 108.5 30.8 109.0 46.6 41.5 166.7 44.5 25.0 122.1 38.4 20.9 131.1 38.7 23.7 200.5 28.0 7.1 4.9 7.9 4.1 7.6 6.7 5.3 7.5 4.0 22.2 11.0 10.5 11.8 4.1 31.0 14.9 14.9 16.4 5.0 53.3 18.1 18.1 19.8 6.0 68.0 20.8 20.8 22.7 7.0 80.6 89.4 56.0 57.9 0.9 13.0 67.0 39.1 82.4 58.9 19.8 0.9 10.1 68.2 16.6 41.9 37.3 14.2 0.9 6.8 34.3 14.0 29.6 26.8 8.2 1.1 4.4 25.0 4.3 24.3 22.2 6.5 1.4 3.7 18.9 4.4 21.2 19.4 5.5 1.6 3.2 16.3 4.1 FY2008 FY2009 FY2010 FY2011 FY2012E FY2012E
11
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
GCPL No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
12