Godrej Consumer Products Ltd

Transcription

1 Consumer Staples-Household Products Bloomberg Code: GCPL IN India Research - Stock Broking Business of Household Brands for Brighter Living Market leader in Household Insecticide (HI) business to be benefited as 82% of the total Indian Population is at Malaria transmission risk area: Around 47% of the total revenue of GCPL comes from Home Insecticide (HI) business, having higher net contribution than other segments of GCPL; which comprises around 5 of the total market share. The penetration of HI products is at very low level of 28% to 3 in rural India & approximately 82% of the total Indian population lives in malaria transmission risk area. We expect the HI business to grow at CAGR of from FY16E to FY18E. EBITDA growth ahead of Sales growth resulting overall Margin Expansion: Cost savings through strategic sourcing, better manufacturing, improving productivity by 2, Project Iceberg in Argentina and Project Pi in India have end up saving ~Rs. 6 Mn incrementally during 9MFY16 and will continue to save in future as well. International Business margins will further improve in next couple of quarters as the price rise kicks in. Innovation, Affordable Prices & Strong Distribution Network drive the overall Volume Growth: With robust pipeline of innovative products, GCPL continues to launch new products every year. The new launches contribute around 4 of the total incremental revenue. GCPL covers around 5 villages and has 5 to 6 lakh outlets; this strong distribution network will help GCPL to maintain its market share. Valuation and Outlook At CMP of Rs.1381, the stock is trading at P/E of 35.4x for FY18E. With the anticipated increase in top line due to lower penetration of Home Insecticide products, strong brand positioning, innovation and new product launches, which were favorably received by the market, with strong balance sheet & financial ratios & some of the cost saving projects, we expect that the consumer expenditure will further increase as the economy revives and hence there will be growth in GCPL s top line and bottom line as well. Based on P/E of 41.5x, we initiate the coverage with a BUY rating for a Target Price of Rs.1621 representing an upside of 17% for a period of months. Key Risks 1). Competition. 2). Volatility in raw material prices Exhibit 1: Valuation Summary YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E Net Sales EBITDA EBITDA Margin (%) Adj. Net Profit EPS (Rs.) RoE (%) PE (x) , *Represents multiples for FY14 & FY15 are based on historic market price For private circulation only. For important information about Karvy s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters Recommendation (Rs.) Apr 1, 216 BUY CMP (as on Mar 31, 216) 1381 Target Price 1621 Upside (%) 17 Stock Information Mkt Cap (Rs.mn/US$ mn) 4729 / wk High/Low (Rs.) 1459 / 12 3M Avg. daily volume (mn).3 Beta (x).9 Sensex/Nifty / 7738 O/S Shares(mn) 34.5 Face Value (Rs.) 1. Shareholding Pattern (%) Promoters 63.2 FIIs 28.7 DIIs 1.8 Others 6.3 Stock Performance (%) 1M 3M 6M 12M Absolute Relative to Sensex Source: Bloomberg Relative Performance* Mar-15 Apr-15 May-15 Source: Bloomberg; *Index 1 Analyst Contact Kunal Jagda Jun-15 GCPL Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 kunalnarendra.jagda@karvy.com Dec-15 Sensex Jan-16 Mar-16 1

2 Apr 1, 216 Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY15 FY16E FY17E FY18E Net sales Optg. Exp (Adj for OI) EBITDA Depreciation Interest Other Income PBT Tax Adj. PAT Profit & Loss Ratios EBITDA margin (%) Net margin (%) P/E (x) EV/EBITDA (x) Dividend yield (%) Balance sheet (Rs. Mn) FY15 FY16E FY17E FY18E Total Assets Net Fixed assets Current assets Other assets Total Liabilities Networth Debt Current Liabilities Other Liabilities Balance Sheet Ratios RoE (%) RoCE (%) Debt/Equity (.) Equity/Total Assets P/BV (x) Exhibit 2: Shareholding Pattern (%) Company Background (GCPL) is the largest home-grown home and personal care company in India led by Mr. Adi Godrej. GCPL ranks No.1 in hair colour, household insecticides and No.2 in soaps. In India, brands are - Good Knight, Cinthol, Godrej Expert, Godrej No.1 and the company is on its way to become an emerging markets FMCG leader. GCPL has its presence in 3 emerging markets (Asia, Africa & Latin America) across 3 categories (home care, personal wash & hair care). In 21, it acquired the Indonesia based Megasari group, a leader in household insecticides, air fresheners and baby care. With the acquisition of Rapidol, Kinky and Frika in South Africa, and the Darling Group, a hair care company, GCPL has a strong presence in the fast growing African hair care market. It also acquired the Issue and Argencos groups in Argentina, leaders in hair colour and also expanded its footprint to Chile through the acquisition of Cosmetica Nacional. The UK based Keyline Brands, operates in hair and personal care. It has strong presence across SAARC & Middle East countries. Cash Flow (Rs. Mn) FY15 FY16E FY17E FY18E PBT* Depreciation Interest Tax (2573) (2791) (3288) (3781) Changes in WC (975) (267) (466) (92) Others (975) (1195) (362) (368) CF from Operations Capex (194) (1635) (1766) (198) Others (1234) CF from Investing (12138) (128) (144) (154) Change in Debt 2995 (5467) (869) (7217) Interest Paid (1189) (142) (937) (858) Dividends & Others (1927) (2357) (2459) (2562) CF from Financing (12) (8866) (1286) (1637) Change in Cash (2213) , *For FY15, PBT before exceptional items Exhibit 3: Revenue Segmentation (%) (GCPL India) FIIs 28.7% DIIs 1.8% Home Care 47. Promoters 63.2% Others 6.3% Hair Care 13. Personal Wash 33. Others 7. Source: BSE, Karvy Research 2

3 Apr 1, 216 Household Insecticide business to be benefited as 82% of the total Indian Population is at Malaria transmission risk area Malaria Elimination Program (216-23): According to the National Framework for Malaria Elimination in India (216-23), a nationwide program conducted by the Ministry of Health & Family Welfare, Government of India indicates that malaria is a major public health problem in India but is preventable and curable. Each case of malaria has shown to cost households at least US$ 2.67 in direct out-of-pocket expenses, leading to an average of 3.4 days of lost productivity at a minimum additional indirect cost of US$ India contributes 7 of malaria cases and 69% of malaria deaths in the South-East Asia region. However, a World Health Organisation (WHO) projection showed an impact in terms of a decrease of 5-7 in the number of malaria cases by 215 in India. Presently in India, 8 of malaria occurs among 2 of people classified as high risk, although approximately 82% of the country s population lives in malaria transmission risk areas. This population which is at high-risk for malaria are found in some 2 districts of Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Odisha, West Bengal and seven north-eastern states. The HI business of GCPL contributes around 47% of the total revenue, having higher net contribution than any other segment of GCPL. The HI brands of GCPL are Good Knight & HIT ; the recent launch of Good Knight-Fast Card is the fastest ever growing product of GCPL, it has become Rs.1 Bn brand in 11 months and the overall Good Knight brand has recently crossed Rs.15Bn Milestone. The penetration of HI products is at very low level of around 28% to 3 in rural India, whereas the penetration in urban India is around 67% to 7. However, the per capita consumption of HI products in urban India is still very less as compared to rest of the world. It is observed that 7 of the urban households only use insecticides when they go to bed at night, so there is opportunity for consumption expansion by either encouraging users to start using insecticides say at 6 o clock in the evening, because the biggest incidence of malaria mosquitoes is during evening or early morning. The Home Care business of GCPL mainly consists of Household insecticides products, enjoying around 5 of the total market share. HI business has recorded growth of CAGR from FY12 to FY15, the slowdown in sales growth in last few years was Exhibit 4: Revenue - Home Care (India), YoY Growth (%) % % FY13 FY14 FY15 FY16E FY17E FY18E 2 1 Home Care (India) (Rs. Mn) YoY Growth (%) mainly due to irregular and poor monsoon which resulted into low mosquito infestation. Going forward, the management expects better monsoon and increase in mosquito infestation. Apart from that, the complex weather patterns resulting from variations in ocean temperatures in the Equatorial Pacific which is termed as El Nino and La Nina, are the cause behind heavy rain fall and floods in some of the south-east Asia regions, which untimely results in high mosquito infestation. We expect the HI business to grow at CAGR of from FY16E to FY18E. Exhibit 5: Mosquito Coils (Rs. Mn) % 11.8% 12.4% 12.3% % % FY11 FY12 FY13 FY14 FY15 Urban (Rs. Mn) Rural (Rs. Mn) Urban Growth (%) Rural Growth (%) Source: AC Nielsen, Karvy Research % 2 1.6% Exhibit 6: Mosquito Liquid (Rs. Mn) Rural (Rs. Mn) FY14 Source: AC Nielsen, Karvy Research Urban (Rs. Mn) FY15 3

4 Apr 1, 216 Exhibit 7: Mosquito Coils (No. in Mn) % 7.2% 1.2% 12.4% % 6.1% 3.1% FY11 FY12 FY13 FY14 FY15 Urban (No. in Mn) Rural (No. in Mn) Urban Growth (%) Rural Growth (%) Source: AC Nielsen, Karvy Research % -4.7% Exhibit 8: Mosquito Liquid (Litres in ) Rural FY14 Source: AC Nielsen, Karvy Research Urban FY15 A Study shows that the proportion of High-risk Population across the globe uses more Mosquito Nets than Household Insecticides and Indoor Residual Spraying (IRS) to eliminate Mosquitoes - Giving clear indication for growth of HI business. South-East Asia Region Exhibit 9: Use of Mosquito Nets V/s HI & Indoor Residual Spraying ITN Source: World Malaria Report 215, Karvy Research Middle East Region 3 7 1% 6 Exhibit 1: Use of Mosquito Nets V/s HI & Indoor Residual Spraying ITN 1 8 Source: World Malaria Report 215, Karvy Research % 1 4 IRS 3 IRS 2 1% 1% According to World Malaria Report 215, about 1.3 Bn people are at some risk of malaria in 1 countries, with about 231 Mn people at high-risk. Bhutan and Korea are in the pre-elimination phase. Sri Lanka has reported no locally acquired cases since October 212, and is now in the prevention of re-introduction phase. Other countries in the region are in the control phase. In , six countries (Bangladesh, Bhutan, Korea, Myanmar, Nepal and Timor-Leste) reported delivering sufficient Insecticide-treated Mosquito Nets (ITNs) or Indoor Residual Spraying (IRS) to protect more than 6 of their population which is at high risk. IRS coverage was highest in Bhutan and Korea. According to World Malaria Report 215, about 276 Mn people in 8 countries are at some risk of malaria, with 18 Mn people at high-risk. Afghanistan, Djibouti, Pakistan, Somalia, Sudan and Yemen have areas of high malaria transmission. Afghanistan, Sudan and Yemen distributed sufficient ITNs in to protect 1, 54% and 82% of their high-risk population, respectively. Sudan and Yemen also used IRS to a limited extent. ITNs were used in Iran and Saudi Arabia. Africa Exhibit 11: Use of Mosquito Nets V/s HI & Indoor Residual Spraying % 3 1 ITN IRS According to World Malaria Report 215, about 313 Mn people in 12 countries of East & Southern Africa are at some risk for malaria, with 254 Mn people at high-risk. About 158 Mn people in the 1 countries of Central Africa are at some risk for malaria, with 145 Mn at high risk. About 342 Mn people in the 17 countries of West Africa are at risk for malaria, with 289 Mn at high risk. Source: World Malaria Report 215, Karvy Research 4

5 Apr 1, 216 From the above observation, we can come to a conclusion that the intervention of insecticide products to eliminate malaria or dengue is very less across the regions where GCPL operates. GCPL s management expects that there is big opportunity to increased usage of pest protection products beyond mosquitoes. Personal Wash Segment (India) - Future Growth in Soap business will be driven by higher realization and Premium products Exhibit 12: Revenue - Personal Wash (India), YoY Growth (%) Hair Care Segment (India) will be driven by Salon & Fashion industry with Premium Brands Exhibit 13: Revenue - Hair Care (India), YoY Growth (%) The Personal Wash segment of GCPL consists of Soap business contributing around 33% of the total revenue, the second largest toilet soaps player in the country. The two major brands are Godrej No.1 (3rd largest soap brand by both value and volume) and Cinthol. During the beginning of FY16, the soap business had recorded double digit value and volume growth. Currently, GCPL is focusing on premium portfolio of soap business. This year, GCPL has launched Godrej No. 1 Nature Soft - Glycerine & Honey variants in the winter soap space. By the end of FY15, Godrej No.1 crossed Rs.1 Bn milestone and Cinthol brand crossed Rs.5 Bn milestone. The soap segment is highly penetrated in both rural as well as urban India. Soap business has recorded growth of 13% CAGR from FY12 to FY15, and going forward, we expect the major growth will be from value realization Colouring hair is no longer just a replacement for anti-aging; it is now a matter of style, trend and wellness too. The increasing affluence among the youth and changing lifestyles are driving the demand for the emerging hair colour segment. The Rs. 25 Bn hair colour market in India today is exciting, experimental and transformative. The products range from an array of powders, gels, colours, while also assuring of nourishing, conditioning, enriching benefits at the same time. India has seen a recent growth of about 3 in recent years wherein a visit to a hair salon is increased by both the genders. Men s grooming has been a big impact since 215 and the average clientele to a standard salon even in a rural area is around 3-4 male customers per day for hair colour services. 8 professional salons keep a choice of hair colour brands suit their customer needs, whereas the other 2 professional salons cater to only one particular brand. India s overall hair colour market is estimated to be around Rs.29 Bn with new players in various categories and several brands. Popular Brands in the retail hair colour segment are L Oreal Paris, Streax, Garnier, Revlon, Godrej etc. The major brands are Godrej Expert Rich Crème Hair Colour which has become the highest selling crème colour in terms of volume within 2 months of its launch. GCPL is targeting premium hair care through B-blunt which is well connected to bollywood and fashion industry. Godrej Expert Rich Crème has recorded a high growth in 9MFY16. The Hair care segment of GCPL contributes around 13% of the total revenue and has recorded growth of 19% CAGR from FY12 to FY15; the recent decline was due to channel destocking; this is a temporary dip and GCPL expects the growth rates to stabilise going forward. 24.1% % FY13 FY14 FY15 FY16E FY17E FY18E Personal Wash (India) (Rs. Mn) YoY Growth (%) 14.1% % FY13 FY14 FY15 FY16E FY17E FY18E 3 2 Hair Care (India) (Rs. Mn) YoY Growth (%) 5

6 Non-India business contributes around 46% of the total revenue Apr 1, 216 Non-India business contributes around 46% of the total revenue; GCPL s biggest international business which includes Home Insecticide - Hit, Air Freshener - Stella and Baby Care - Mitu in Indonesia and Hair care - Darling in East, West & Southern Africa. Of which, Darling business in Africa is growing at 2 on YoY basis. Exhibit 14: Geography-wise Revenue Break-up India 53. Rest of Asia 1. LATAM 8.3% Others 8.1% Africa 6. Europe 7. Middle East 6. Exhibit 15: Revenue Share of GCPL India & GCPL Subsidiaries % 61.2% 55.8% 33.2% 38.8% 44.2% 53.7% 46.3% FY11 FY12 FY13 FY14 FY15 GCPL India GCPL Subsidiaries Exhibit 16: Revenue Growth YoY (%) From the above chart, we can observe that the rest of Asia contributes around 1 of the total revenue, of which the household insecticide business in Indonesia which consists of HIT brand contributes around 4 of the Indonesia s revenue, the Air Freshener & Baby care segments in Indonesia which consist of Stella & Mitu brands contribute around 3 & of the Indonesia s revenue respectively. The Africa business contributes around 6. of the total revenue, of which the Darling business which is into hair care segment contributes around of the Africa s revenue % 2.7% 2.2% 24.2% 13.9% 9.2% % 6.2% 1.1% 1.4% FY12 FY13 FY14 FY15 FY16E FY17E FY18E GCPL India GCPL Subsidiaries The slowdown in the revenue growth in international business was due to elections in Indonesia during FY14 and FY15. Also, there was lower consumer confidence in South Africa where the consumer spending was at 1 years low and on the other hand, North Nigeria was facing political and law order issues. So, all in all, global economic conditions were not favourable, which impacted the top line of GCPL. Going forward, the company expects the international business to do well, as new President has been elected in Indonesia, which will stabilise and improve the general economic, political and business situations. During FY16E, the sales in Africa and LATAM have witnessed good growth, the Darling business in Africa has recorded 2 growth and LATAM region has recorded about 2 growth in Q3FY16. Apart from that, GCPL is planning to take some newer products which are still under research in Africa, to other markets in Eastern and South Africa in near future. EBITDA growth ahead of Sales growth resulting in overall Margin Expansion Margin Contraction: The major reason for margin contraction during last few years was mainly due to: 1) 6 increase in Minimum wages, 4 Increase in LPG & 33% hike in fuel prices in Indonesia, 2) Devaluation of South African Rand and 3) Adverse sales mix and discount offered in Chile. Exhibit 17: PAT Expansion Trajectory (YoY) (%) % Exhibit 18: Revenue Growth V/s EBITDA Growth (YoY) (%) % 31.9% % 29.6% 28.3% 21.4% % %.3% 14.2% % FY12 FY13 FY14 FY15 FY16E FY17E FY18E % % % 5.8% 8.9% 11.1% 11.2% 6.1% FY12 FY13 FY14 FY15 FY16E FY17E FY18E GCPL India GCPL Subsidiaries Revenue Growth (%) EBITDA Growth (%) 6

7 Growth in the FMCG sector will be the key driver: Apr 1, 216 Action Plan: GCPL has come out with strategic action plan to improve overall margin by making savings through strategic sourcing, better manufacturing and improving productivity by 2 through usage of technology & providing more training to sales team. GCPL has already implemented Project Iceberg in Argentina and Project Pi in India. These projects are basically cost saving projects through which GCPL has end up saving incrementally ~Rs. 6 Mn in 9MFY16 and will continue to save in future as well. Africa Business margins are expected to recover in next couple of quarters as the price rise kicks in. India is one of the largest populated countries in the world with more than 1.2 Bn people. India s population is growing at a rate of 1.41% annually. It is a young country with almost 6 of the population below the age of 3 years. The consumption of goods will therefore be driven by younger and more affluent consumers. Rising incomes, growing youth population and brand consciousness have been key growth drivers of the sector. Low penetration levels in rural market offer room for growth. The overall market size of FMCG in India is estimated to grow at a CAGR of 17% from US$ 47.3 Bn in 215 to US$ 13.7 Bn in 22E. The urban segment is the largest contributor to the sector, accounting for more than 6 of total revenue and had a market size of around US$ Bn in 215. Semi-urban and rural segments are growing at a rapid pace; they currently account for 4 of revenues. The rural FMCG market expected to increase at a CAGR of 18.1% to US$1 Bn during FY12 25E. The overall rural FMCG consumption continues to grow at 12. during FY14. Total consumption expenditure to reach nearly US$3.6 Tn by 22 from US$1.3 Tn in 212. India has 7 of its population living in rural areas. With rising urbanization, more people will have exposure to modern products and brands; and thus shift to branded and packaged goods and products. Exhibit 19: FMCG market (US$ Bn) 11 Exhibit 2: Urban/Rural industry break-up (215) Rural FY7 FY8 FY9 FY1 FY11 FY12 FY13 FY15 FY2E Urban 6 Source: India Brand Equity Foundation (IBEF), Karvy Research Source: IBEF, Karvy Research E FMCG market size: US$47.3 Bn Growing demand: 1. Rising incomes and growing youth population have been key growth drivers of the sector. Brand consciousness has also aided demand. 2. Tier II/III cities are witnessing faster growth in modern trade. Attractive opportunities: 1. Low penetration levels in rural market offer room for growth. 2. Disposable income in rural India has increased due to the direct cash transfer scheme. 3. Growing demand for premium products. FMCG market size: US$13.7 Bn Advantage Indian Higher investments: 1. Many players are expanding into new geographies and categories. 2. Organized retail share is expected to double to 14-18% of the overall retail market by 215. Policy support: 1. Investment approval of up to 1 foreign equity in single brand retail and 51% in multi-brand retail. 2. The minimum capitalization for foreign FMCG companies to invest in India is US$1Mn. Source: IBEF, Karvy Research 7

8 Exhibit 21: Business Assumptions Y/E Mar (Rs. Mn) FY15 FY16E FY17E FY18E Comments Standalone Revenue Revenue Growth (%) EBITDA EBITDA Margins (%) Consolidated Revenue Revenue Growth (%) EBITDA EBITDA Margins (%) PAT (normalized) Fully Diluted EPS (Rs.) Fully Diluted EPS Growth (%) Capex (ex. Acquisition) - cash capex (194) (1635) (1766) (198) Net CFO Net Debt (533) Free Cash Flow Apr 1, 216 Low penetration of HI products in rural India will be major growth driver as 47% of the total revenue comes from this segment, Soap business in India will be driven by higher realization and premium products and Hair care segment will be driven by Salon and Fashion industry with premium products. Cost savings through strategic sourcing, better manufacturing, improving productivity by 2, Project Pi in India has end up saving ~Rs. 6 Mn incrementally in 9MFY16 and will continue to save in future as well. The Darling business in Africa and revenues from Latin America are growing at high teens and mid 2's respectively, whereas improvement in consumer sentiments and economic conditions in Indonesia will drive entire FMCG market. The consolidated revenue of GCPL is expected to grow at 9. CAGR from FY16E to FY18E. Project Iceberg in Argentina and price rise in international business will further improve margins in next couple of quarters. With cost saving projects like Iceberg and Pi, GCPL expects to normalise its margin. With very moderate level of capital expenditure required in the business, GCPL has very strong balance sheet, earning an average RoE of 2 & RoCE of 17% in last 4 years. GCPL's EPS is expected to grow at 13.6% CAGR from FY16E to FY18E. The average net debt to equity is.4x during last 4 years on consolidated basis. Exhibit 22: Karvy vs Consensus Revenues (Rs. Mn) Karvy Consensus Divergence (%) Comments FY16E (3.3) We have moderate outlook on volume and realizations growth. Revenue is FY17E (5.9) EBITDA (Rs. Mn) expected to grow at CAGR of 9. during FY16E-18E. FY16E (14.) With cost saving projects like Iceberg and Pi, GCPL expects to normalise its margin. We also expect the advertisement expenditure made in past expected FY17E (14.2) to yield positive results in coming years enabling margin expansion. EPS (Rs.) FY16E (13.8) FY17E (14.) We accommodate incremental savings from strategic cost saving projects. Source: Bloomberg, Karvy Research 8

9 Apr 1, 216 Exhibit 23: Revenue - Consolidated, YoY Growth (%) % 11.2% % 6.1% 11.1% FY13 FY14 FY15 FY16E FY17E FY18E 1-1 Revenue (Rs. Mn) YoY Growth (%) Low level of penetration of HI products in rural India will be major growth driver as 47% of the total revenue comes from this segment, Soap business in India will be driven by higher realization and premium produtcs and Hair care segment will be driven by Salon and Fashion industry with premium products. The Darling business in Africa and revenues from Latin America are growing at high teens and mid 2 s respectively. The consolidated revenue of GCPL is expected to grow at 9. CAGR from FY16E to FY18E. Exhibit 24: EBITDA - Consolidated, YoY Growth (%) % 17.7% % 15.3% 9824 FY FY FY FY16E FY17E FY18E 2 18% 13% 1 Cost savings through strategic sourcing, better manufacturing, improving productivity by 2, Project Iceberg in Argentina and Project Pi in India have end up saving ~Rs. 6 Mn incrementally in 9MFY16 and will continue to save in future as well. International business margins will further improve in next couple of quarters as the price rise kicks in. EBITDA (Rs. Mn) EBITDA Margin (%) GCPL has consistently earned PAT in the range of 12% to 14% till FY13, the decline in margin was mainly due to 6 increase in minimum wages, 4 increase in LPG & 33% hike in fuel prices in Indonesia, adverse sales mix and discount offered in Chile. Going forward, with cost saving projects like iceberg and Pi, GCPL expects to normalise its margin. Exhibit 25: EBIT - Consolidated, YoY Growth (%) Exhibit 26: PAT - Consolidated, YoY Growth (%) % % % % 13% % % % % 1 FY13 FY14 FY15 FY16E FY17E FY18E % 1 8% FY13 FY14 FY15 FY16E FY17E FY18E EBIT (Rs. Mn) EBIT Margin (%) PAT (Rs. Mn) PAT Margin (%) Exhibit 27: EPS - Consolidated, RoE & RoCE % 22.4% 2.9% % 16.2% 16.2% 17.3% 16.1% 17.1% FY13 FY14 FY15 FY16E FY17E FY18E EPS (Rs.) RoE (%) RoCE (%) With very moderate level of capital expenditure required in the business, GCPL has very strong balance sheet, earning an average RoE of 2 & RoCE of 17% in last 4 years. GCPL enjoys negative working capital for India operations which is healthy sign for any business. Its average net debt to equity is at.4x for last 4 years on consolidated basis. GCPL s EPS is expected to grow at 13.6% CAGR from FY16E to FY18E. 9

10 Apr 1, 216 Exhibit 28: Advertisement & Publicity, as % of Total Revenue % % % 14.6% % 14% 12% 1 FY11 FY12 FY13 FY14 FY15 Advertisement and publicity (Rs. Mn) As % of Total Revenue GCPL has maintained its advertisement spend in the range of 12% to 14% and it is expected to be at same level going forward. The advertisement spend of GCPL is much ahead of its competition. Exhibit 29: Company Snapshot (Ratings) Low High Quality of Earnings 33 Domestic Sales 33 Exports 33 Net Debt/Equity 33 Working Capital Requirement 33 Quality of Management 33 Depth of Management 33 Promoter 33 Corporate Governance 33 1

11 Apr 1, 216 Valuation & Outlook At CMP of Rs.1381, the stock is trading at P/E of 35.4x for FY18E. With the anticipated increase in top line due to lower penetration of Home Insecticide products, strong brand positioning, innovation and new product launches, which were favorably received by the market, with strong balance sheet & financial ratios & some of the cost saving projects, we expect that the consumer expenditure will further increase as the economy revives and hence there will be growth in GCPL s top line and bottom line as well. Based on P/E of 41.5x, we initiate the coverage with a BUY rating for a Target Price of Rs.1621 representing an upside of 17% for a period of months. Exhibit 3: PE Band Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Source: Prowess, Karvy Research P/E (x) Average 1SD 2SD -1SD -2SD Exhibit 31(a): Comparative Valuation Summary CMP (Rs.) Mcap EV/EBITDA (x) P/E (x) EPS (Rs.) (Rs. Mn) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E GCPL Jyothy Laboratories ltd Hindustan Unilever Ltd Bajaj Corp Ltd Source: Bloomberg, Karvy Research Exhibit 31(b): Comparative Operational Metrics Summary CAGR % (FY15-17E) RoE (%) Price Perf (%) Net Sales (Rs. Mn) Sales EBITDA EPS FY15 FY16E FY17E 3m 6m 12m FY15 FY16E FY17E GCPL Jyothy Laboratories ltd (7.) (9.8) Hindustan Unilever Ltd (2.9) Bajaj Corp Ltd (11.) (18.5) (19.5) Source: Bloomberg, Karvy Research Key Risks 1). Competition. 2). Volatility in raw material prices 11

12 Apr 1, 216 Financials Exhibit 32: Income Statement YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E Revenues Growth (%) Operating Expenses EBITDA Growth (%) Depreciation & Amortization Other Income EBIT Interest Expenses PBT Tax Adjusted PAT Growth (%) (4.6) Exhibit 33: Balance Sheet YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E Cash & Cash Equivalents Trade Receivables Inventories Loans & Advances & Others Investments Net Block Total Assets Current Liabilities & Provisions Debt Other Liabilities Total Liabilities Shareholders Equity Reserves & Surplus Total Networth Total Networth & Liabilities

13 Apr 1, 216 Exhibit 34: Cash Flow Statement YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E PBT* Depreciation Interest Tax Paid (2378) (2573) (2791) (3288) (3781) Inc/dec in Net WC 1565 (975) (267) (466) (92) Other Income (448) (718) (427) (362) (368) Other non cash items 225 (257) (767) Cash flow from operating activities Inc/dec in capital expenditure (1329) (194) (1635) (1766) (198) Inc/dec in investments (4427) (1794) Others Cash flow from investing activities (4948) (12138) (128) (144) (154) Changes in Debt (3213) 2995 (5467) (869) (7217) Dividend paid (1991) (2111) (2357) (2459) (2562) Interest paid (14) (1189) (142) (937) (858) Others Cash flow from financing activities (625) (12) (8866) (1286) (1637) Net change in cash 6 (2213) , *For FY14, FY15, PBT before exceptional items Exhibit 35: Key Ratios YE Mar FY14 FY15 FY16E FY17E FY18E EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) Dividend Payout Ratio (%) Net Debt/Equity (x) (.) RoE (%) RoCE (%) Exhibit 36: Valuation Parameters YE Mar FY14 FY15 FY16E FY17E FY18E EPS (Rs.) DPS (Rs.) BVPS (Rs.) PE (x) P/BV (x) EV/EBITDA (x) EV/Sales (x) ; *Represents multiples for FY14 & FY15 are based on historic market price 13

14 Apr 1, 216 Stock Ratings Absolute Returns Buy : > Hold : 5- Sell : < Connect & Discuss More at (Toll Free) research@karvy.com Live Chat f in You Tube Disclaimer Analyst certification: The following analyst(s), Kunal Jagda, who is (are) primarily responsible for this report and whose name(s) is/are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer: Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial products. KSBL has filed an application with SEBI, seeking registration as a Research Analyst and such application is pending for disposal. 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