ANNUAL REPORT THREADBARE

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1 GODREJ CONSUMER PRODUCTS FY13 Our analysis of Godrej Consumer Products' (GCPL) FY13 annual report provides answers on why the company's consolidated tax rate fell to 17% in FY13 from 23% in FY12 and how these tax rates are likely to pan out, going forward. We also note that GCPL amortizes expenses of ~INR776m (8.3% of FY13 PBT) directly through reserves, partly on account of amortization of brands (5.9% of PBT) and partly as premium on redemption of debentures (2.4% of PBT). ART #1: Accounting/Auditing issues Consolidated tax rate declined to 17% in FY13 from 23% in FY12, due to subsidiaries (derived) tax rate going down to 15% in FY13 (FY12: 33%). Subsidiaries tax rate declined due to tax savings on royalty income on products sold in Indonesia increasing from 1.8% in FY12 to 7.9% in FY13. Indovest Capital, subsidiary in Labuan, Malaysia royalty transaction structuring Tax Rate: 0% Tax Rate: 30% Indovest Capital, Labuan, Malaysia FY13 Turnover: INR1.8b, PBT/PAT: INR1.7b Trademarks for brands sold in Indonesia Royalty Income PT Intrasari Raya, Witholding PT Megasari Makmur tax of 10% Indonesia Also, Nigerian and Mozambican subsidiaries enjoy corporate tax holidays and so does Lebanese subsidiary, resulting in lower subsidiaries tax rate. Tax rate is low in domestic business due to certain manufacturing units being eligible for tax exemptions, which led to standalone tax rate of 19% in FY13 (FY12: 20%). These benefits are likely to continue for a couple of years. HIT and Good Knight brands are being amortized over 20 years directly through reserves. Accordingly, INR527.5m (5.9% of FY13 PBT) is being routed through the general reserve every year. Premium on redemption of 0% debentures stood at INR248.2m for FY13 (2.4% of PBT), which has been adjusted directly against the securities premium as permitted by the Companies Act. Also, foreign exchange loss and amalgamation expenses, on amalgamation of Dutch subsidiaries, totaling to ~INR385m (3.8% of FY13 PBT) were adjusted against the reserves instead of routing them through the P/L. ART #2: Key financial insights Employee costs are increasing consistently at the subsidiary level due to acquisitions outside India. Subsidiaries employee costs were 7.7% of consolidated revenue in 1HFY14 (FY13: 6.6%). Bill discounting charges on account of debtors and invoice discounting increased from INR119.8m in FY12 to INR170.6m in FY13 on account of domestic operations. Investors are advised to refer through disclosures made at the end of the Research Report. 21 March 2014 ANNUAL REPORT THREADBARE the ART of annual report analysis Subsidiaries (derived) tax rate reduced from 33% in FY12 to 15% in FY13 pulling down the consolidated tax rate to 17% in FY13 from 23% in FY12 Expenses of INR776m (8.3% of FY13 PBT) routed through the reserves Employee cost at the subsidiary level on the rise Stock Info Bloomberg GCPL IN CMP (INR) 770 Equity Shares (m) M.Cap. (INR b)/(usd b) 262/ Week Range (INR) 977/672 1,6,12 Rel.Perf.(%) -4/-11/-15 Financial summary (INR b) Y/E Mar 2014E 2015E 2016E Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) E: MOSL Estimates Shareholding pattern (%) As on Dec-13 Sep-13 Dec-12 Promoter Domestic Inst Foreign Others ART will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe ART's wide canvas - from accounting and auditing issues to operating performance to management insights to governance matters - will help readers paint a clearer picture of the stock's investment worthiness. Ashish Gupta (Ashish.Gupta@MotilalOswal.com); Chaitanya Arora (Chaitanya.Arora@MotilalOswal.com); Stock performance (1 year) 1

2 ART #1 Consolidated tax rate declined to 17% for FY13 from 23% in FY12 Standalone tax rate stands at 19% in FY13 (FY12: 20%) due to tax exemptions in certain manufacturing units Subsidiaries (derived) tax rate dipped from 33% in FY12 to 15% in FY13 No taxes on royalty income of Indovest Capital, Malaysian subsidiary; rate of royalty increased to 7.9% of Indonesian revenue in FY13 (FY12: 1.8%) ACCOUNTING / AUDITING ISSUES Tax structure in subsidiaries, exemptions in domestic units result in lower tax rate on consolidated basis GCPL has a consolidated tax rate of 17% in FY13 (FY12: 23%), primarily due to exemptions in standalone and lower tax rate in subsidiaries. Standalone tax exemptions Standalone tax rate stood at 19% in FY13 (FY12: 20%) due to certain manufacturing units of the company located in specified areas being eligible for income-tax exemptions. These exemptions are likely to continue for a few more years resulting in lower tax rates at the standalone level (MAT rate as guided by the management). Subsidiaries tax structure Indovest Capital, a subsidiary incorporated in Labuan, Malaysia, had a turnover of INR1.8b with PBT/PAT of INR1.7b in FY13. This has increased from PAT of INR304m in FY12. As explained by management, Indovest Capital owns the trademarks for brands sold in Indonesia, and Indovest s turnover pertains to royalty income from other Indonesian subsidiaries. GCPL s Indonesian subsidiaries are having a tax rate of 30%, while Indovest is a tax-free entity. However, as stated by management, Indonesian subsidiaries are paying a withholding 10% on royalty payment. We also note that rate of royalty as a percentage of aggregate Indonesian subsidiaries turnover increased from 1.8% in FY12 to ~8% in FY13. Since the above royalty transaction is between two subsidiaries, the transaction is eliminated on consolidation. Reporting currency of Indovest Capital is USD. Consolidated tax rate dips from 23% in FY12 to 17% in FY13 due to lower subsidiary taxes Indovest Capital, subsidiary in Labuan, Malaysia royalty transaction structuring Source: Company, MOSL 21 March

3 Royalty income as % of turnover of Indonesian subsidiaries jumped to ~8% in FY13 Tax holidays for African subsidiaries in Nigeria and Mozambique and 0% tax rate for Lebanese subsidiary results in lower tax rate An African subsidiary, Lorna Nigeria had a PBT of INR35m for FY13. The PAT figure, however, was INR200m. As explained by management, subsidiary has received tax refund for previous years resulting in higher PAT. The subsidiary has a pioneer tax status, resulting in 0% corporate income tax for 5 years. Standard corporate tax rate in Nigeria is 30%. Hair Trading (offshore) S. A. L incorporated in Lebanon has profits of ~INR400m in FY13 (FY12: INR11m) with 0% tax. Standard corporate tax rate in Lebanon is 15%. In addition to this, the company also has tax exemptions in the Mozambican subsidiary, Weave Mozambique Limitada. Thus, increase in rate of royalty for Indovest Capital and tax credit in Africa results in tax rate for the subsidiaries coming down from 33% in FY12 to 15% in FY March

4 Lower tax rate for certain subsidiaries result in consolidated tax rate being lower (INR m) Name of subsidiaries FY12 FY13 Turnover PBT PAT Tax Tax Country of Standard corporate tax rates for rate Turnover PBT PAT rate incorporation countries / Remarks (%) (%) PT Intrasari Raya 9, , Indonesia Corporate tax rate is 25% PT Megasari Makmur 7, ,197 1, Indonesia Corporate tax rate is 25% Laboratoria Cuenca 1, , Argentina Corporate tax rate is 35% Keyline Brands Limited (UK) 2, , U.K. Corporate tax rate reduced from 26% in FY12 to 24% in FY13. It will be further reduced to 23% in FY14, 21% in FY15 and 20% thereafter Subinite (Pty) Ltd. 1, , South Africa Corporate tax rate is 28% Hair Trading (offshore) S. A. L , Lebanon Lorna Nigeria 1, , Nigeria Tax Various incentives are granted for eligible investments Company has received tax credit for prior year's tax in FY13. Pioneer tax status, resulting in 0% corporate income tax for 5 years. Standard corporate tax rate is 30%. Cosmetica Nacional , Chile Corporate tax rate is 20% Indovest Capital ,800 1,691 1, Malaysia Profit includes royalty income from other subsidiar(y)/(ies) which gets eliminated on consolidation Weave Mozambique Limitada Godrej South Africa (Pty) (earlier known as Rapidol (Pty)) Style Industries Limited Corporate tax rate is 32%. However, , Mozambique the company operates in a freetrade zone resulting in lower taxes 1, , South Africa Corporate tax rate is 28% , Kenya Corporate tax 30%. For 37.5%. However, there are several exemptions available subject to certain conditions Argencos SA Loss Argentina Corporate tax rate is 35% Godrej Household Products (Bangladesh) Pvt. Ltd Loss Loss Bangladesh Loss-making company, hence no tax Godrej Nigeria Ltd Nigeria Corporate tax rate is 30% Source: Company annual report, KPMG guidance for global corporate tax rates, MOSL Amortisation of INR527.5m (5.9% of FY13 PBT) routed through reserves every year for Good Knight and HIT, due to High court scheme approval Amortization of trademarks/brands over 20 years; HIT and Good Knight amortization routed through general reserve Trademarks and brands for HIT and Good Knight, acquired under a Scheme of Amalgamation with the erstwhile Godrej Household Products Limited (GHPL), are being amortized over a period of 20 years directly through the reserves. Accordingly, GCPL amortizes INR527.5m (5.9% of FY13 PBT) directly through the general reserve every year instead of P&L, based on the High court scheme approval. Further, other trademarks/brands are amortized over a period of ten years through the P&L, except Kinky and Soft & Gentle brand, which are amortized over a period of 20 years. The company added INR861m under trademarks and brands during FY13 which is primarily for the Soft and Gentle brand. 21 March

5 Redemption premium of INR248.2m in FY13 (2.4% of PBT) adjusted directly against reserves Redemption premium on NCDs directly routed through reserves; adjusted PBT higher by 2.4% During FY13, GCPL has issued 2,500 0% redeemable NCDs of INR2.5b with YTM of 9.4%p.a. As permitted under the Companies Act, GCPL amortizes the finance cost directly through the reserves (Securities Premium) instead of P&L. Premium on redemption of debentures stood at INR248.2m in FY13 (FY12: INR272.3m). Had the company accounted for the same through P&L, its profits would have been lower by 2.4% of FY13 PBT (FY12: 2.8%). Premium on redemption of debentures routed through reserves instead of P&L (INR m) Particulars FY11 FY12 FY13 Premium on redemption of debentures Profit before tax 6,529 9,773 10,246 Premium as a % of PBT (%) Forex loss of INR385m (3.8% of FY13 PBT) on merger of Dutch subsidiaries adjusted against reserves Forex differences arising on long-term loans, taken for investment in subsidiaries, amortized over period of loan GCPL operates its ESOP scheme through GCPL ESOP trust which purchases shares from secondary market Forex differences on amalgamation and long term loans capitalised Forex differences on merger: GCPL amalgamated two of its Dutch subsidiaries w.e.f. Sept 30, 2013 and adjusted foreign exchange loss and amalgamation expenses of INR382.8m and INR1.9m respectively directly against reserves. Had these items been routed through P&L, profits would have been lower by ~INR385m (3.8% of FY13 PBT). Forex differences arising on long-term loan: Further, GCPL had earlier exercised the option of amortizing foreign exchange differences arising on long-term foreign currency loan through P&L over the life of the loan (if taken for other than fixed assets) and in the form of depreciation through fixed assets (if taken for fixed assets). The unamortized amount of forex differences was INR112.1m and INR37.4m at the FY12 & FY13 end respectively. This had increased to INR61.1m as at 1HFY14 end. Forex loss in P&L: Loss on foreign currency transactions and translation for FY13 is INR327.8m (FY12: INR205m); 3.2% of FY13 PBT (FY12: 2.1%). Loan to ESOP trust stands at INR503m GCPL operates its ESOP scheme through GCPL ESOP Trust, which is granted a loan by the company to purchase shares from the secondary market. The Trust pays interest on the loan at least at the bank rate. The loan will be repaid by the Trust out of the exercise price received from the employees exercising the options (Exercise price = Market price on date of grant of options + Interest at least at the bank rate). Based on the number of options exercised, the amount recovered from employees will be remitted to the company. However, a SEBI circular has forbidden any further secondary market purchases by ESOP Trusts w.e.f. January 17, All outstanding shares in ESOP Trust (acquired prior to Jan 17, 2013) will have to comply with the SEBI guidelines or be disposed off before June 30, March

6 Loans to GCPL ESOP trust stands at INR503m As explained by the management, the company is in compliance of the SEBI norms currently and no shares need to be disposed off. Loans to ESOP Trust stood at INR503m at the end of FY13 (FY12: INR874.9m). GCPL had altered ESOS scheme during FY13 (GIL shares are allotted in this scheme). No options have been exercised in this scheme till FY m options are outstanding at FY13 end and 1m GIL shares have been sold as the options lapsed Cross-currency movement led to foreign currency translation reserve being negative in FY13 Modification in terms of GIL ESOS scheme; no interest on ESOP price post June 2012 The Employee Stock Option Scheme (ESOS) allowed employees of Godrej Household Products Limited (GHPL) to subscribe to equity shares of Godrej Industries Limited (GIL). The exercise price of each share was equal to market price on date of grant plus interest at a rate not less than bank rate from date of grant till date of exercise. However, during the year, the company modified the terms to charge interest only till 30 th June, m options are outstanding at the end of FY13 (FY11 end: 2.1m options) with exercise period available till December 31, No options have been exercised as at the end of FY13. The company has sold ~1m shares from the ESOP Trust (options forfeited) during FY13 and the Trust has 1.1m shares in the Trust as on Sept 30, m shares pending with the ESOP Trust; no options exercised in the scheme (m) Particulars FY11 FY12 FY13 Options granted Options lapsed/forfeited, pending sale Options lapsed/forfeited and sold Total number of options outstanding Foreign currency translation reserve negative in INR depreciating scenario Foreign currency translation reserve stands at negative INR504.8m in FY13 (FY12: negative INR297.5m), despite INR depreciating by 14% against USD during the year. Ideally, INR depreciation should lead to positive foreign currency translation reserve for positive net worth companies. As explained by the management, there are more than 10 other currencies which are involved due to multi-geographical presence, and the exchange movement of all such currencies resulted in negative foreign currency translation reserve. 21 March

7 ART #2 Bill discounting charges of INR138m in FY13 pertains to domestic business KEY FINANCIAL INSIGHTS Discounting charges on debtors at INR170.6m; majority pertains to domestic business Bill discounting charges increased from INR119.8m in FY12 to INR170.6m in FY13, with a bulk of these expenses forming part of the domestic business. These charges arise on debtors discounting and invoice discounting and form part of the finance cost of the company. As explained by management, the discounting is without recourse. Standalone debtors (net) stood at INR1.2b in FY13 with mere 11 days of receivables. However, the receivable days would be higher if debtors were to be grossed up. Bill discounting charges increased in FY13 (INR m) Particulars FY12 FY13 Standalone Subsidiaries (derived) 0 33 Consolidated Debtors (Standalone) 943 1,221 Employee costs on the rise due to overseas acquisitions Employee costs have jumped from INR4.0b in FY12 to INR5.9b in FY13; 9.1% of FY13 revenue (FY12: 7.6%). For 1HFY14, employee cost stood at INR3.8b (10.3% of 1HFY14 revenue). Employee costs have jumped from INR4.0b in FY12 to INR5.9b in FY13 Employee costs as a percentage of revenue continuously on the rise (INR b) Subsidiary (derived) employee costs were 7.7% of consolidated revenue for 1HFY14 (FY13: 6.6%) leading to rise in overall employee cost Source: Company annual report, Half yearly results, MOSL Further, increase in employee costs is mainly attributable to higher costs at the subsidiary level. Employee costs at the subsidiary level as a percentage of total employee costs increased from 32% in FY09 to 72% in FY13 mainly due to acquisitions made by company outside India. Subsidiary (derived) employee costs were 2% of the consolidated revenues in FY09. This figure has increased to 7.7% during 1HFY March

8 Subsidiaries are the major drivers to increase in employee costs (INR b) Source: Company annual report, Half yearly results, MOSL Indonesian food business under Simba brand sold for a profit INR1.3b Increase in current liabilities due to inorganic additions and working capital optimization across geographies Divestment of non-core business to Creador for USD35m; profit of INR1.3b on the transaction During FY13, the company divested its food business in Indonesia (non-core business) for an enterprise value of USD35m (includes USD6-7m debt) to Creador. This business was operated by an Indonesian subsidiary of the company viz PT Simba Indosnack Makmur. Consequently, PT Simba Indosnack Makmur has ceased to be a subsidiary. Cash received in FY13 was INR880.2m as part consideration, while the balance deferred consideration is shown as a part of other current assets. Disposals in trademarks and brands (intangible assets) stood at INR1.1b, which appear primarily due to sale of the food business. The total profit recorded on divestment of this business is INR1.3b. However, as per the sale agreement, the company will continue the distribution of the Simba brand on a break-even basis for one year which has had an impact on EBITDA margins of the subsidiaries business for 1HFY14. Cash flow from operations supported by current liabilities and provisions Cash flow from operations during FY13 stood lower at INR8.3b (FY12: INR11.0b) aided by current liabilities and provisions of INR4.6b in FY13 (FY12: INR7.0b). Increase in current liabilities and provisions was mainly due to other current payables jumping from INR2.5b in FY12 to INR4.4b in FY13. As per management, the increase is mainly due to inorganic additions and working capital optimization across geographies. Debtors more than six months from due date of payment has jumped from INR58.6m in FY12 to INR329.6m in FY13; 5.5% of FY13 outstanding debtors (FY12: 2.2%). 21 March

9 Working capital supported by increase in current liabilities and provisions Cash flow from operations post interest/ebitda ratio dips sharply (INR m) Particulars FY12 FY13 EBITDA (A) 8,554 9,824 Add: Non-cash adjustments (mainly due to foreign exchange) Less: Direct taxes paid 2,100 2,066 Operating profit before working capital changes 6,742 8,240 Inventories -3,445-2,632 Trade receivables ,177 Loans and advances Other current assets Current liabilities and provisions 7,028 4,550 Cash generated from operations after tax before exceptional items 8,983 7,403 Add: Exceptional items 2, Cash generated from operations 10,985 8,283 Less: Financial cost Cash flow from operations post interest (B) 10,563 7,440 Less: Capital expenditure 1,565 2,636 Less: Investment in subsidiaries 5,791 6,911 Free cash flows post interest 3,207-2,107 Cash flow from operations post interest/ebitda (C = B/A*100) (%) 123% 76% Consolidated cash conversion cycle improves to 35 days in FY13 due to standalone business improving to -14 days while subsidiaries cycle increases to 101 days Cash conversion cycle improves driven by standalone operations; subsidiaries cycle increases marginally Average cash conversion cycle has improved to 35 days in FY13 from 50 days in FY11. The standalone cash conversion cycle has a huge improvement in the number of days from 30 in FY11 to negative 14 in FY13. On the other hand, subsidiary operating cycle is consistently increasing on a yearly basis. From 88 days in FY11, it has now crossed the 100 day mark in FY13. Cash conversion cycle stable due to negative cycle at standalone Particulars FY11 FY12 FY13 Standalone Inventory days Receivable days Payable days Subsidiaries Inventory days Receivable days Payable days Consolidated Inventory days Receivable days Payable days March

10 Bulk of the working capital is being blocked at subsidiary level Other financial highlights Total intangible assets (including goodwill on consolidation) stood at ~INR40b (FY12: INR33b); 1.2x of FY13 net worth (FY12: 1.2x). Debt increased from INR18.8b in FY12 to INR24.6b in FY13 for acquisitions in Africa & Latin America Hedged exposure (USD m) Particulars FY12 FY13 Forward contract Source: Company annual report, MOSL Intangible assets at 1.2x of networth primarily due to goodwill and trademarks (INR b) Particulars FY11 FY12 FY13 Intangible assets - acquired Goodwill on consolidation Total intangible assets Net worth Intangible assets as % of net worth (%) During FY13, the company purchased a capital asset from Godrej Vikhroli Properties LLP (promoter group company) for INR1.0b, which is forming part of CWIP. Debt increased from INR18.8b in FY12 to INR24.6b in FY13 primarily taken for acquisition of Cosmetica Nacional, Chile and Darling group. Debt equity ratio remained stable at 0.7x in FY13. Cash balance of the company has increased significantly from INR6.4b in FY12 to INR8.7b in FY13. Majority of the forex exposure is unhedged at the end of FY13 end (INR m) Nature of outgo Currency FY12 FY13 Payables USD 1,389 3,937 Payables EUR, SGD, JPY, GBP Loan and interest payable USD 2,410 1,345 Bank borrowings USD 47 - Receivables USD ,060 Receivables ZAR, GBP, EUR Cash and cash equivalents USD Cash and cash equivalents EUR, ZAR Net unhedged payables 2,979 3, March

11 ART #3 MANAGEMENT SPEAK/KEY PLANS 3x3 strategy: GCPL has continued to reiterate its commitment to the 3x3 strategy it has in place for a few years now. The 3x3 strategy focuses on 3 core product segments- Hair Care, Home Care and Personal Care and the establishment of the company as the market leader in these segments across 3 continents- Asia, Africa & Latin America. Category-wise sales break-up Household Insecticides Personal Wash Growth of Category (%) Growth of GCPL (%) 27% 26% 20% 10% FY12 FY13 Hair Care Domestic net sales growth 21 March

12 Overseas business increased share to 44% of total revenue in FY13 (FY12: 39%) Geographical sales breakup International markets On the international front, the company is the market leader in air fresheners and wet tissues in Indonesia, hair colors across several countries in Africa and Latin America and hair extensions in Africa, while also being the number two player in home insecticides in Indonesia. The company is pegging its growth on the expansion of the emerging economies like Indonesia in South East Asia and South Africa. In terms of net revenue, the subsidiaries business contributed 44% of the net consolidated revenue of the group in FY13 (39% in FY12). Geographical growth and profitability Subsidiaries revenue increasing consistently as proportion of net revenue Update on acquisitions during the period Darling acquisition steady: GCPL has seen a steady stream of strategic acquisitions in the past few years. The company is still in the process of completing the integration of the Darling Group it has acquired in Africa. The second phase of the incorporation from November, 2012 has extended the reach of the company to the sizable Kenyan market in East Africa. The company hopes to promote new products in the wet hair color market in Kenya under the Darling brand. 21 March

13 Soft & Gentle acquired in UK; 4th largest female deodorant brand in the British market in terms of market share 58% hike in the minimum wages for the Indonesian business and a 33% increase in fuel costs likely to impact EBITDA margins for FY14 Acquisition of Soft & Gentle brand: GCPL has also tried to establish a toe hold in the well-developed UK personal care market on the back of acquisition of Soft & Gentle brand by Keyline Brands, a subsidiary of GCPL, during FY13. Soft & Gentle is the 4th largest female deodorant brand in the British market in terms of market share. Acquired 60% stake in Cosmetica Nacional: The company acquired 60% in Cosmetica Nacional in Chile in FY13 and has launched many new products in the Latin American market through the Ilicit brand. Hair care acquisition: During FY14, the company has acquired a 30% stake in b:blunt, a premium salon chain with 17 outlets and 4 academies across India. The company does not believe the acquisition to be strategically important but is looking at it as a learning investment in terms of hair color and care product preferences among the premium clientele these salons enjoy. Other highlights Production facilities centralized in Mozambique: Production for South Africa and Mozambique has been centralized at the facilities in Mozambique, which are in a declared tax free zone resulting in lower indirect and corporate taxes. Even Nigeria has a 5 year corporate tax holiday thereby reducing the tax incidence in the country. Merger of subsidiaries: During the year, Godrej Nigeria Holdings Ltd merged with Godrej Consumer Products Mauritius Ltd (both wholly owned subsidiaries of GCPL) with effect from April 1, EBITDA margins guidance: During 1HFY14, there has been a 58% hike in the minimum wages for the Indonesian business and a 33% increase in fuel costs. Though there have been price hikes to counter the cost enhancements, its remains to be seen what impact they will have on the overall EBITDA margins of the company. Cross-pollination and its benefits: Due to its expansion and presence in diverse markets across 3 continents, the company is also looking at introducing new products to different sets of consumers by way of cross-pollination. Example: Introduction of Aer range of car and home air fresheners in India, after the product was originally a part of the Indonesian line-up under the Stella brand. Premiumization benefits: The company is also looking at premiumization of its brands to attract a younger, more brand conscious target base. The revamp of Cinthol, with a new brand ambassador and advertising campaign seems to be paying dividends in terms of enhancing the image of the brand and its customer perception. Rural penetration: The company is looking at the potential in the value for money segment which it believes will help in creating rural demand and set the pace of growth in penetration. This has prompted the company to strengthen rural distribution which has resulted in expanding reach by 10% in FY13. ERP system update: The company is deploying SAP in most of the subsidiary units and is currently in the process of integrating them into a single ERP system. 21 March

14 ART #4 Vivek Gambhir appointed as MD after retirement of A. Mahendran in June, 2013 GOVERNANCE MATTERS Composition of Board of Directors and change in management The Board of Directors of GCPL consists of 14 directors, of which 7 are independent directors. Ms. Nisaba Godrej has been appointed as a Whole-time Director designated as Executive Director, Innovation w.e.f 1 st July, 2013 for a period of 3 years. Mr. A Mahendran retired as Managing Director of the company on 30 th June, 2013 and has been appointed as Non-Executive Additional Director w.e.f 1 st July, Mr. Vivek Gambhir, the Chief Strategy Officer of Godrej Industries has been appointed by the company as an Additional Director w.e.f 30 th April, 2013 and is also the Managing Director of the company w.e.f 1 st July, 2013 for a period of 3 years, following the retirement of Mr. A Mahendran. Ms. Ireena Vittal has been appointed as an Additional Director w.e.f 30 th April, Board meetings and attendance 5 Board Meetings were held during the year, as against the minimum requirement of 4 meetings. Attendance of Directors in Board Meetings and AGM Name of the Director Board meetings attended Attendance at last AGM Mr. Adi Godrej 5 Yes Mr. Jamshyd Godrej 5 Yes Mr. Nadir Godrej 4 Yes Ms. Tanya Dubash 4 Yes Ms. Nisaba Godrej 5 Yes Mr. A. Mahendran 5 Yes Mr. Narendra Ambwani 5 Yes Prof. Bala Balachandran 3 (1) Yes Mr. Bharat Doshi 4 (1) Yes Dr. Omkar Goswami 4 Yes Mr. Aman Mehta 4 (1) Yes Mr. D. Shivakumar 3 Yes Note: Figures in brackets indicate attendance through teleconference Outgoing Managing Director A Mahendran receives 1m shares under ESPP Under the Employee Stock Purchase Plan (ESPP), eligible employees of the cadre Vice President and above are to compulsorily subscribe to a maximum of 1m equity shares. The scheme is administered through a Trust set up for this purpose. The company has extended the scheme to Mr. A Mahendran, who was the Managing Director of the company till 30 th June, The shares have been subscribed by Mr. Mahendran at an exercise price equal to market price on the date of grant along with interest till date of exercise. 21 March

15 29,464 shares issued under Employee Stock Grant Scheme in FY13 at exercise price of INR1 (same as face value) Current ESOP scheme with exercise price of INR1 GCPL also has in a place an Employee Stock Grant Scheme. The scheme envisages issue of up to 2.5m equity shares to eligible employees at an exercise price of INR1 each (same as face value of the shares). 29,464 shares have been issued during the year under this scheme. As at the end of FY13, 0.13m grants are outstanding. Transfer of GCPL shares between promoters Promoter shareholding of GCPL stood at 63.3% at the end of 3QFY14. Of this, shareholding of GIL has increased from 21.15% in 1QFY13 to 22.3% (increase by ~115bp) in 3QFY14. The change in shareholding is primarily due to inter-se transfer of promoter stake. GIL has acquired shares from different individual promoters of the company at various prices resulting in total outflow of ~INR3.9b over the last six quarters. Increasing stake of GIL over the period Godrej Consumer Products Limited No. of shares (m) March, 2012 March, 2013 December, 2013 % of Holding No. of shares (m) % of Holding No. of shares (m) % of Holding Holding of GIL Holding of other promoters Total promoter holding Source: BSE, MOSL Amount of money spent by GIL for purchase of stake (INR m) Godrej Industries Ltd. Date 14-Sep Aug Nov Feb-14 Total Price (INR/share) Number of shares purchased (m) Total amount (INR m) 1,102 1, ,868 Source: BSE, MOSL GIL increasing stake in GCPL by purchasing shares from other promoters The company is making the purchases by inter-se transfer of promoter stake and not open market purchase due to: Less liquidity in the stock as they can t get big blocks. Management does not want price to shoot up if they source the same from open market. As per GIL s management, the company is very positive on the prospects of GCPL and hence is keen on buying stake while also being open to increasing stake further. 21 March

16 Financials and Valuation Income Statement (Consolidated) (INR Million) Y/E March E 2015E 2016E Net Sales 48,509 63,908 77,095 90, ,261 Change (%) Cost of Goods Sold 23,185 29,511 36,146 42,157 49,529 Gross Profit 25,324 34,397 40,949 47,989 56,732 Margin (%) Total Expenditure 39,903 53,923 65,756 76,364 89,750 EBITDA 8,607 9,985 11,339 13,782 16,511 Change (%) Margin (%) Depreciation ,022 1,165 Int. and Fin. Charges ,098 1, Other Income-rec ,136 Forex gain/(loss) PBT 7,771 8,957 10,225 12,738 15,565 Change (%) Tax 2,261 1,792 2,156 2,675 3,269 Deferred Tax Tax Rate (%) PAT 5,511 7,165 7,994 9,971 12,187 Change (%) Margin (%) Minority interest Group Adjusted PAT 5,266 6,672 7,342 9,201 11,339 Non-rec. (Exp.)/Income 2,002 1, Reported PAT 7,267 7,961 7,994 9,971 12,187 Balance Sheet (INR Million) Y/E March E 2015E 2016E Share Capital Reserves 27,796 31,564 34,924 40,144 47,502 Minority Int 591 1,170 1,823 2,593 3,440 Net Worth 28,136 31,904 35,264 40,484 47,842 Loans 19,030 13,530 13,731 12,755 11,464 Deferred Liability Capital Employed 47,868 46,784 51,073 56,179 63,203 Gross Block 20,403 25,618 29,843 34,068 38,818 Less: Accum. Depn. 4,940 5,734 6,629 7,651 8,816 Net Fixed Assets 15,464 19,885 23,214 26,417 30,003 Capital WIP Goodwill 21,454 21,454 21,454 21,454 21,454 Currents Assets 22,606 19,096 22,552 26,803 33,082 Inventory 7,839 8,327 9,639 12,349 14,556 Account Receivables 4,725 6,072 7,393 8,644 10,189 Cash and Bank Balance 6, ,080 Loans and Advances 3,143 3,565 4,047 4,595 5,220 Other Current Assets ,037 Curr. Liab. & Prov. 11,815 13,801 16,297 18,646 21,486 Account Payables 7,702 9,866 11,894 13,860 16,279 Other Liabilities 3,684 3,904 4,371 4,745 5,158 Provisions Net Current Assets 10,791 5,296 6,255 8,157 11,596 Net Assets 47,867 46,785 51,073 56,179 63,203 E: MOSL Estimates 21 March

17 Financials and Valuation Ratios Y/E March E 2015E 2016E Basic (INR) EPS Cash EPS BV/Share DPS Payout (%) Valuation (x) P/E Cash P/E EV/Sales EV/EBITDA P/BV Dividend Yield Return Ratios (%) RoE RoCE Working Capital Ratios Debtor (Days) Asset Turnover (x) Leverage Ratio Debt/Equity (x) Cash Flow Statement (INR Million) Y/E March E 2015E 2016E OP/(Loss) before Tax 8,607 9,985 11,339 13,782 16,511 Direct Taxes Paid -2,261-1,792-2,156-2,675-3,269 (Inc)/Dec in WC ,305-1,710 CF from Operations 6,124 7,822 8,445 8,802 11,533 Extraordinary Items 2,002 1, Inc in FA -1,260-5,207-4,225-4,225-4,750 Goodwill -6, CF from Investments -5,309-3,918-4,225-4,225-4,750 Inc in Debt -1,002-5, ,291 Dividend Paid -1,820-3,185-3,982-3,982-3,982 Other Income ,073 1,300 Interest Paid ,098-1, Other Item CF from Fin. Activity -3,252-9,032-4,002-5,084-5,069 Inc/Dec of Cash -2,437-5, ,714 Add: Beginning Balance 2,269 6, Closing Balance 6, ,080 E: MOSL Estimates 21 March

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