Godrej Consumer Products Ltd. Rating: Accumulate FMCG. Godrej Consumer Products Ltd STOCK IDEA

Transcription

1 Godrej Consumer Products Ltd. FMCG STOCK IDEA Rating: Accumulate Date August 16, 2013 CMP (Rs.) 892 Target (Rs.) 965 Potential Upside 8% BSE Sensex NSE Nifty 5742 Scrip Code Bloomberg IN Reuters GOCP.BO BSE Group A BSE Code NSE Symbol GODREJCP Market Data Market Cap.(Rs. Cr) Equity Sh. Cap. (Rs Cr) Wk High/Low 977.4/570 Avg. Quarterly Volume Face Value (Rs.) 2 Shareholding Pattern (As on 30 th Jun 2013) Foreign 28.3 Institutions 1.2 Promoters 63.3 Public & Others 7.2 Total Comparative Price Chart Aug-12 Nov-12 Feb-13 May-13 Aug-13 BSE FMCG Atul Karwa Research Analyst atulkarwa@systematixshares.com Arun Gopalan VP Research & Investments arungopalan@systematixshares.com Godrej Consumer Products Ltd () is a major player in the Indian FMCG market with a strong presence in soaps, household insecticides and hair colour. It is one of the largest marketers of toilet soaps in the country. Four of its brands (GoodKnight, Cinthol, Godrej No.1 and Godrej Expert Hair Colour) are ranked among the 100 Most Trusted Brands in the country by Economic Times - Brand Equity The company is expanding rapidly in the African continent with acquisitions of the Darling group, Rapidol and Kinky. It also entered Chile, with the acquisition of a 6 stake in Cosmetica Nacional. Q1FY14 Performance: reported strong topline growth momentum of 24% yoy in Q1FY14 to Rs 1720 cr led by 19% growth in the domestic market. However EBITDA margins declined by 150 bps yoy to 12.8% (lowest in 15 quarters) impacted mainly by 54% and 39% increase in ad spends and employee cost respectively. Reported PAT remained flat at Rs 133 cr. Adjusting for one-off PAT grew by 7%. Domestic business reported 19% increase in topline. All the three major segment Household insecticides, Toilet soaps and Hair color posted strong growth of 24%, 13% and 32% respectively. EBITDA margins were lower by 40 bps yoy attributed to higher ad spends. International business (46% of cons sales) grew by 3 (19% organic growth) to Rs 803 cr. However EBITDA margins witnessed declined by 240 bps yoy to 9% primarily due to country specific issues. Robust performance in international market: All the international businesses of the company have been growing steadily with international business now contributing to 44% of the consolidated revenues. The company is concentrating on 3 x 3 strategy - building our presence in emerging markets in 3 continents through 3 core categories. Focus on this strategy has led to being market leaders in air fresheners and wet tissues in Indonesia, hair colours across several countries in Africa and Latin America and hair extensions in Africa. It is number two player in home insecticides in Indonesia. Most of its brands are either leaders or among the top 3 in their categories Focus on innovations and renovations: has been able to grow ahead of the markets due to its intense focus on innovations and marketing initiatives, which has aided higher consumption and penetration. The company has a strong innovation pipeline with launches and relaunches of multiple products during the year. It has revamped its heritage brand Cinthol, launched Godrej Expert Rich Crème Hair Colour, a unique innovation of a crème in a sachet and Godrej Aer, new range of car and home air fresheners which shall drive topline growth. Strong, stable growth in domestic market: Net sales and EBITDA of the company in the domestic market grew by and 13% in respectively which is comparable to previous year. The growth was driven by 26% growth in value terms and 9% growth in volume. The company continues to derive synergy benefits from the merger of and Godrej Sara Lee helping to improve margins. Increasing volume in new launches to drive revenues and margins: New launches like Godrej Aer freshener and Godrej Hair Color have been witnessing strong growth. Other segments like soaps and household insecticides grew by 17% and 26% respectively. Besides the company has increased its A&P spend to sales by 120 bps to Rs 76 cr in. We expect the company to post better volume growth going forward Particulars Sales (` Cr) EBITDA (` Cr) EBITDA (%) PAT (` Cr) PATM (%) EPS (`) P/E (x) P/BV (x) BVPS (`) EV/EBITDA (x) FY FY14E

2 Valuation & Outlook: Growth from new launches in both domestic and international markets would help the company to post strong topline growth. We expect EBITDA margins to improve due to moderation in material cost. Contribution from the international acquisitions to the profits would increase gradually as their integration with the company increases. The stock currently trades at PE of 34x of its FY14E earnings of Rs 26.1 and can be accumulated with a target of Rs 965. BUSINESS OVERVIEW Indian subcontinent contributes to more than half of its revenues Segment Wise is the market leader in hair colour, household insecticides and liquid detergents and have maintained our number two position in toilet soaps in India. Internationally, we continue to lead in air fresheners and wet tissues in Indonesia and hair colour across various countries in Africa and Latin America. It is also the leading company in hair extensions in Africa and has built stronghold in Indonesia & Nigeria, in insecticides and medicated soaps respectively. derives 44% of its revenues from Home Care segment followed by hair care and personal wash segments at 24% and 21% respectively. Geography-wise the Indian subcontinent contributes to more than half of its revenues at 56%. Indonesia provides for of the revenues while Africa, Latin America and Europe contribute 11%, 8% and respectively to the topline. Geography Wise Personal Wash, 21% Others, 11% Hair Care, 24% Home Care, 44% Europe, Latin America Africa,, 8% 11% Indonesi a, Indian Subconti nent, 56% Household Insecticides: The household Insecticides business is one of the fastest growing as well as profitable business segment. Part of the erstwhile JV Godrej Sara Lee, bought out Sara Lee s stake in May 2010 and later amalgamated it with the parent company. It continues to perform well ahead of the market growth rate. Its brand Goodknight was ranked 1 st among the Most Trusted Brand in Household Care in the Economic Times Brand Equity Most Trusted Brands Survey this year Sales in this segment is growing by more than yoy for the last 11 quarters % 13% 2

3 Sales in this segment is growing by more than yoy for the last 11 quarters. More than 5 of the revenues comes from mosquito repellant which include Good knight and Jet brands while the remaining is accounted by HIT which is clear leader in the aerosols market, focused on killing pests and offering undisputed efficacy. Hair Care: is present in the hair color segment in India while globally the company provide hair color, hair styling sprays, shampoos and hair extension products. It is the leader in hair color segment and largest manufacturer of powder hair color in the world. Domestic revenues from hair color has grown by 27% in Q4 as against 17%, and in Q3, Q2 and Q1 respectively indicating strong growth momentum. Introduction of Godrej Expert Rich Crème, a breakthrough innovation at multiple levels has been well received by the customers. Growth in hair care have picked up momentum over the last few quarters % 26% 1 is the second largest soap player in India Personal Wash: is the second largest soap player in India. The company s main brand are Godrej no.1, Cinthol, Godrej Fairglow, Vigil, Crowning Glory & it s two herbal brands Swastik & Goderj Shikakai. Godrej no.1 is its largest brand. was a good year for the company. Sales in value terms grew by 26% against the industry average of while volume growth was 9% against 4% for the industry. The company expects to grow ahead of the market going forward. Soaps (Value Growth) Soaps (Volume Growth) % 26% 1 2% 1 4% 9%

4 International Business: derives almost half of its International revenues from Indonesia with Africa, Latin America and Europe accounting for the other half. Middle East, 1% Indonesia accounts for almost half of global revenues Africa, 2 Indonesi a, 4 Latin America, 19% Europe, Margins in Indonesia are expected to recover in FY14 Africa and LatAm have witnessed strong topline growth Indonesia: is the leader in air freshener and wet tissues market and no. 2 in household insecticides. It posted sales growth of 29% yoy in on back of distribution expansion and new launches with EBITDA margin of 19%. EBITDA margins were lower impacted by minimum wage hike and higher commodity prices. The company gained market share across categories. HIT magic paper continued to post high growth. HIT and Stella are the key brands of the company. Africa: The company sells a range of hair extensions, hair colors, household insecticides and personal wash products in the African market. It is the leaders in hair color and hair extension products. This region posted a sales growth of 68% in and EBITDA margin of 16%. is looking to scale up its business presence in South Africa, Mozambique, Nigeria and Kenya. It has taken several initiatives like 1) Direct Go to Market model in Nigeria, 2) Launch of Brazilian Wave new style in South Africa and 3) New warehouse and supply chain infrastructure in Kenya to service modern trade on a replenishment basis. It also plans to tap Ethiopian market in the next 2 years. Latin America: LatAm posted topline growth of 84% yoy in on back of consolidation of Chile business, new product launches and continuous marketing investments. However EBITDA margins dropped to due to tougher regulatory norms on imports, capital flows and high on ground inflation in Argentina and hyper competitive activities in Chile Sales Growth 68% 84% UK: UK business posted growth of 41% yoy in with EBITDA margins of 11%. The company has launched several new products supported by strong marketing. It has acquired Soft&Gentle deo brand from Colgate-Palmolive and successfully integrated. 41% 1 19% EBITDA Margin 6% 11% Indonesia Africa LatAm UK Indonesia Africa LatAm UK

5 FINANCIAL PERFORMANCE PROFIT & LOSS (Rs Cr) CASH FLOW (Rs Cr) Particulars FY10 FY11 Particulars FY11 Operating Income ##### Cash from operating activities Materials consumed Cash from investing activities (2369.9) (856.4) (815.7) Employee cost Cash from financing activities (7.3) Other operating expenses Net Change in Cash EBITDA Depreciation EBIT Interest Other Income Profit Before Tax Tax Adj. PAT BALANCE SHEET (Rs Cr) RATIO ANALYSIS Particulars FY11 Particulars FY11 Share Capital EV/Sales Reserves & Surplus EV/EBITDA Total Shareholder funds EPS Non Current Liabilities P/E Long term borrowings P/BV Deferred tax liabilities RoE 29.8% 25.9% 21.6% Other long term liabilities Growth Long term provisions Operating Income 80.7% 31.7% 31.7% Minority Interest EBITDA 59.2% % SOURCES OF FUNDS PAT 51.6% 41.2% -1.4% Fixed Assets Profitability Capital WIP EBITDA Margin 17.7% 17.6% 15.3% Investments PBIT Margin 16.3% 16.3% 14.1% Other Non current assets PAT Margin 13.9% 14.9% 11.2% Stability Current Assets Debt/Equity Current Liabilities Current Ratio Net Current Assets Interest coverage TOTAL ASSETS

6 Explanation to Ratings BUY: TP>; ACCUMULATE: <TP<; HOLD: -<TP<; REDUCE: -<TP<-; SELL: TP<- DISCLAIMER This report has been prepared by and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer to buy or sell any securities or other financial instruments. However before taking any investment decision, investors are requested to consult their investment and tax advisor/s. This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. This document may not be reproduced, distributed or published for any purposes without prior written approval of Systematix Shares & Stocks (I) Ltd. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. This document should not be considered to be taken as an offer to sell or a solicitation to buy any security. Systematix Shares & Stocks (I) Ltd may from time to time solicit from or perform broking or other services for any company mentioned in this mail and/or its attachments. Systematix Shares & Stocks (I), its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Institutional Equities Research Group of. and our affiliates, officers, directors, and employees worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of analyst and the Company may or may not subscribe to the views expressed therein. and other group companies, its directors, associates, employees and analysts including analyst/s prepared this report may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. Jk Somani Building, British Hotel Lane, Fort, Mumbai, India

7