1
Apr 01, 2016
Godrej Consumer Products Ltd
Consumer Staples-Household Products
Godrej Consumer Products Ltd
India Research - Stock Broking
BUY
Bloomberg Code: GCPL IN
Recommendation (Rs.)
CMP (as on Mar 31, 2016) 1381
Target Price 1621
Upside (%) 17
Stock Information
Mkt Cap (Rs.mn/US$ mn) 470209 / 7101
52-wk High/Low (Rs.) 1459 / 1020
3M Avg. daily volume (mn) 0.3
Beta (x) 0.9
Sensex/Nifty 25342 / 7738
O/S Shares(mn) 340.5
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 63.2
FIIs 28.7
DIIs 1.8
Others 6.3
Stock Performance (%)
1M 3M 6M 12M
Absolute 16 5 13 33
Relative to Sensex 5 8 17 46
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
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 50% of the total market share. The penetration of HI products
is at very low level of 28% to 30% 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 15% from FY16E to FY18E.
EBITDA growth ahead of Sales growth resulting overall Margin Expansion:
Cost savings through strategic sourcing, better manufacturing, improving
productivity by 20%, Project Iceberg in Argentina and Project Pi in India have end
up saving ~Rs. 600 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
40% of the total incremental revenue. GCPL covers around 50000 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 & nancial 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 12-15 months.
Key Risks
1). Competition. 2). Volatility in raw material prices
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
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
Net Sales 76024 82764 87821 97531 108472
EBITDA 11568 13653 14450 16868 19226
EBITDA Margin (%) 15.2 16.5 16.5 17.3 17.7
Adj. Net Prot 7597 9071 9811 11561 13295
EPS (Rs.) 22.3 26.6 28.8 34.0 39.1
RoE (%) 21.4 22.4 20.9 21.0 20.4
PE (x) 38.5 39.1 47.9 40.7 35.4
Source: Company, Karvy Research, *Represents multiples for FY14 & FY15 are based on historic market price
Analyst Contact
Kunal Jagda
040 – 3321 6277
kunalnarendra.jagda@karvy.com
70
90
110
130
150
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug -15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Mar
-
16
GCPL
Sensex
2
Apr 01, 2016
Godrej Consumer Products Ltd
Company Background
Godrej Consumer Products Ltd (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 2010, 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.
Exhibit 2: Shareholding Pattern (%)
Source: BSE, Karvy Research
Exhibit 3: Revenue Segmentation (%) (GCPL India)
Source: Company, Karvy Research
Personal
Wash
33.0%
Hair Care
13.0%
Home Care
47.0%
Others
7.0%
Balance sheet (Rs. Mn)
FY15 FY16E FY17E FY18E
Total Assets 91419 99306 104846 112587
Net Fixed assets 17315 17961 18651 19388
Current assets 27705 29228 31052 35915
Other assets 46399 52116 55143 57284
Total Liabilities 91419 99306 104846 112587
Networth 43107 50562 59664 70397
Debt 21697 21299 16550 12258
Current Liabilities 24659 24789 25136 25471
Other Liabilities 1956 2656 3496 4461
Balance Sheet Ratios
RoE (%) 22.4 20.9 21.0 20.4
RoCE (%) 17.3 16.1 17.1 18.0
Debt/Equity 0.3 0.2 0.1 (0.0)
Equity/Total Assets 47.2 50.9 56.9 62.5
P/BV (x) 8.2 9.3 7.9 6.7
Source: Company, Karvy Research
Cash Flow (Rs. Mn)
FY15 FY16E FY17E FY18E
PBT* 12659 13288 15659 18007
Depreciation 908 989 1076 1172
Interest 1002 1042 937 858
Ta x (2573) (2791) (3288) (3781)
Changes in WC (975) (267) (466) (920)
Others (975) (1195) (362) (368)
CF from Operations 10046 11067 13556 14968
Capex (1904) (1635) (1766) (1908)
Others (10234) 427 362 368
CF from Investing (12138) (1208) (1404) (1540)
Change in Debt 2995 (5467) (8690) (7217)
Interest Paid (1189) (1042) (937) (858)
Dividends & Others (1927) (2357) (2459) (2562)
CF from Financing (120) (8866) (12086) (10637)
Change in Cash (2213) 994 65 2790
Source: Company, Karvy Research, *For FY15, PBT before exceptional items
Company Financial Snapshot (Y/E Mar)
Profit & Loss (Rs. Mn)
FY15 FY16E FY17E FY18E
Net sales 82764 87821 97531 108472
Optg. Exp (Adj for OI) 69111 73371 80663 89245
EBITDA 13653 14450 16868 19226
Depreciation 908 989 1076 1172
Interest 1002 1042 937 858
Other Income 915 870 804 810
PBT 12487 13288 15659 18007
Ta x 2723 2791 3288 3781
Adj . PAT 9071 9811 11561 13295
Profit & Loss Ratios
EBITDA margin (%) 16.5 16.5 17.3 17.7
Net margin (%) 11.0 11.2 11.9 12.3
P/E (x) 39.1 47.9 40.7 35.4
EV/EBITDA (x) 26.9 33.3 28.3 24.4
Dividend yield (%) 0.5 0.4 0.4 0.5
Source: Company, Karvy Research
Promoters
63.2%
FIIs
28.7%
DIIs
1.8%
Others
6.3%
3
Apr 01, 2016
Godrej Consumer Products Ltd
Household Insecticide business to be benefited as 82% of the total Indian Population is at
Malaria transmission risk area
Malaria Elimination Program (2016-2030):
According to the National Framework for Malaria Elimination in India (2016-2030), 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$ 10.85. India contributes 70%
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 50%-75% in the number of malaria cases by 2015 in India.
Presently in India, 80% of malaria occurs among 20% of people classied 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
200 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 30% in rural India, whereas the penetration
in urban India is around 67% to 70%. 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 70% 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 50% of the total market
share. HI business has recorded growth of 15% CAGR from FY12 to FY15, the slowdown in sales growth in last few years was
Exhibit 4: Revenue - Home Care (India), YoY Growth (%)
Source: Company, Karvy Research
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 Pacic
which is termed as El Nino and La Nina, are the cause behind
heavy rain fall and oods 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 15% from
FY16E to FY18E.
Exhibit 5: Mosquito Coils (Rs. Mn)
Source: AC Nielsen, Karvy Research
Exhibit 6: Mosquito Liquid (Rs. Mn)
Source: AC Nielsen, Karvy Research
6893
7750
8410
9935
9365
5140
5710
6410
7121
7164
6.5%
12.4%
8.5%
18.1%
-5.7%
11.8%
11.1%
12.3%
11.1%
0.6%
-10%
-5%
0%
5%
10%
15%
20%
0
4000
8000
12000
FY11
FY12
FY13
FY14
FY15
Urban (Rs. Mn)
Rural (Rs. Mn)
Urban Growth (%)
Rural Growth (%)
2117
9745
2576
10422
0
2000
4000
6000
8000
10000
12000
Rural (Rs. Mn)
Urban (Rs. Mn)
FY14
FY15
16281
18959
20748
24171
27797
31966
18.5%
16.4%
9.4%
16.5%
15.0%
15.0%
0%
5%
10%
15%
20%
0
8000
16000
24000
32000
FY13
FY14
FY15
FY16E
FY17E
FY18E
Home Care (India) (Rs. Mn)
YoY Growth (%)
4
Apr 01, 2016
Godrej Consumer Products Ltd
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
Middle East Region
Africa
Exhibit 9: Use of Mosquito Nets V/s HI & Indoor Residual Spraying
Source: World Malaria Report 2015, Karvy Research
Exhibit 10: Use of Mosquito Nets V/s HI & Indoor Residual Spraying
Source: World Malaria Report 2015, Karvy Research
Exhibit 11: Use of Mosquito Nets V/s HI & Indoor Residual Spraying
Source: World Malaria Report 2015, Karvy Research
According to World Malaria Report 2015, about 1.3 Bn people
are at some risk of malaria in 10 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 2012, and is now in the prevention of re-introduction
phase. Other countries in the region are in the control phase.
In 2012−2014, six countries (Bangladesh, Bhutan, Korea,
Myanmar, Nepal and Timor-Leste) reported delivering
sucient Insecticide-treated Mosquito Nets (ITNs) or Indoor
Residual Spraying (IRS) to protect more than 60% of their
population which is at high risk. IRS coverage was highest in
Bhutan and Korea.
According to World Malaria Report 2015, about 276 Mn
people in 8 countries are at some risk of malaria, with 108 Mn
people at high-risk. Afghanistan, Djibouti, Pakistan, Somalia,
Sudan and Yemen have areas of high malaria transmission.
Afghanistan, Sudan and Yemen distributed sucient ITNs in
2012−2014 to protect 100%, 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.
According to World Malaria Report 2015, 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 10 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.
Exhibit 7: Mosquito Coils (No. in Mn)
Source: AC Nielsen, Karvy Research
Exhibit 8: Mosquito Liquid (Litres in ‘000)
Source: AC Nielsen, Karvy Research
3329
3670
3783
4251
3823
2676
2901
3075
3262
3109
7.2%
10.2%
3.1%
12.4%
-10.1%
13.6%
8.4%
6.0%
6.1%
-4.7%
-15%
-10%
-5%
0%
5%
10%
15%
0
1100
2200
3300
4400
FY11
FY12
FY13
FY14
FY15
Urban (No. in Mn)
Rural (No. in Mn)
Urban Growth (%)
Rural Growth (%)
1612
7431
1959
7818
0
2000
4000
6000
8000
Rural
Urban
FY14
FY15
100%
100%
100%
75%
60%
50%
45%
25%
85%
25%
100%
35%
30%
1%
0%
1%
5%
1%
20%
0%
0%
20%
40%
60%
80%
100%
ITN
IRS
100%
100%
100%
85%
55%
30%
25%
15%
35%
30%
0%
35%
10%
1%
0%
5%
0%
20%
40%
60%
80%
100%
ITN
IRS
80%
45%
65%
60%
85%
70%
70%
15%
10%
1%
0%
0%
35%
10%
0%
5%
0%
20%
40%
60%
80%
100%
ITN
IRS
5
Apr 01, 2016
Godrej Consumer Products Ltd
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
Hair Care Segment (India) will be driven by Salon & Fashion industry with Premium Brands
Exhibit 12: Revenue - Personal Wash (India), YoY Growth (%)
Source: Company, Karvy Research
Exhibit 13: Revenue - Hair Care (India), YoY Growth (%)
Source: Company, Karvy Research
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.10 Bn
Colouring hair is no longer just a replacement for anti-aging; it
is now a matter of style, trend and wellness too. The increasing
auence 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 benets at the same time.
India has seen a recent growth of about 30% 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 2015 and the
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.
average clientele to a standard salon even in a rural area is around 3-4 male customers per day for hair colour services. 80%
professional salons keep a choice of hair colour brands suit their customer needs, whereas the other 20% 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 20 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.
12607
13402
14546
15273
15732
16204
24.1%
6.3%
8.5%
5.0%
3.0%
3.0%
0%
5%
10%
15%
20%
25%
30%
0
4100
8200
12300
16400
FY13
FY14
FY15
FY16E
FY17E
FY18E
Personal Wash (India) (Rs. Mn)
YoY Growth (%)
3787
4941
5564
6427
7198
8062
14.1%
30.5%
12.6%
15.5%
12.0%
12.0%
5%
15%
25%
35%
0
3000
6000
9000
FY13
FY14
FY15
FY16E
FY17E
FY18E
Hair Care (India) (Rs. Mn)
YoY Growth (%)
6
Apr 01, 2016
Godrej Consumer Products Ltd
Non-India business contributes around 46% of the total revenue
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 20% on YoY basis.
Exhibit 14: Geography-wise Revenue Break-up
Source: Company, Karvy Research
Exhibit 16: Revenue Growth YoY (%)
Source: Company, Karvy Research
Exhibit 17: PAT Expansion Trajectory (YoY) (%)
Source: Company, Karvy Research
Exhibit 18: Revenue Growth V/s EBITDA Growth (YoY) (%)
Source: Company, Karvy Research
Exhibit 15: Revenue Share of GCPL India & GCPL Subsidiaries
Source: Company, Karvy Research
From the above chart, we can observe that the rest of Asia contributes around 10% of the total revenue, of which the household
insecticide business in Indonesia which consists of ‘HIT’ brand contributes around 40% of the Indonesia’s revenue, the Air
Freshener & Baby care segments in Indonesia which consist of ‘Stella’ & ‘Mitu’ brands contribute around 30% & 15% of the
Indonesia’s revenue respectively. The Africa business contributes around 6.5% of the total revenue, of which the ‘Darling’
business which is into hair care segment contributes around 15% of the Africa’s revenue.
The slowdown in the revenue growth in international business
was due to elections in Indonesia during FY14 and FY15.
Also, there was lower consumer condence in South Africa
where the consumer spending was at 10 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 20% growth and LATAM
region has recorded about 25% 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) 60% increase in
Minimum wages, 45% Increase in LPG & 33% hike in fuel prices in Indonesia, 2) Devaluation of South African Rand and
3) Adverse sales mix and discount oered in Chile.
20.7%
20.2%
13.9%
8.6%
6.2%
10.1%
10.4%
54.0%
50.3%
24.2%
9.2%
12.0%
12.0%
12.0%
0%
10%
20%
30%
40%
50%
60%
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
GCPL India
GCPL Subsidiaries
39.0%
-15.5%
10.5%
15.9%
11.2%
14.2%
12.5%
53.3%
133.1%
-31.7%
29.6%
0.3%
28.3%
21.4%
-50%
0%
50%
100%
150%
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
GCPL India
GCPL Subsidiaries
India
53.5%
Rest of Asia
10.5%
LATAM
8.3%
Others
8.1%
Africa
6.5%
Europe
7.0%
Middle East
6.0%
66.8%
61.2%
55.8%
53.7%
53.5%
33.2%
38.8%
44.2%
46.3%
46.5%
10%
30%
50%
70%
FY11
FY12
FY13
FY14
FY15
GCPL India
GCPL Subsidiaries
31.7%
31.9%
18.5%
8.9%
6.1%
11.1%
11.2%
31.0%
14.8%
17.7%
18.0%
5.8%
16.7%
14.0%
5%
15%
25%
35%
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Revenue Growth (%)
EBITDA Growth (%)
7
Apr 01, 2016
Godrej Consumer Products Ltd
Growth in the FMCG sector will be the key driver:
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 65% of the population below the age of 30 years. The consumption of
goods will therefore be driven by younger and more auent consumers. Rising incomes, growing youth population and brand
consciousness have been key growth drivers of the sector. Low penetration levels in rural market oer 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 2015 to US$ 103.7 Bn in
2020E. The urban segment is the largest contributor to the sector, accounting for more than 60% of total revenue and had a
market size of around US$ 28.38 Bn in 2015. Semi-urban and rural segments are growing at a rapid pace; they currently account
for 40% of revenues. The rural FMCG market expected to increase at a CAGR of 18.1% to US$100 Bn during FY12–25E.
The overall rural FMCG consumption continues to grow at 12.5% during FY14. Total consumption expenditure to reach nearly
US$3.6 Tn by 2020 from US$1.3 Tn in 2012. India has 70% of its population living in rural areas. With rising urbanization, more
people will have exposure to modern products and brands; and thus shift to branded and packaged goods and products.
Exhibit 19: FMCG market (US$ Bn)
Source: India Brand Equity Foundation (IBEF), Karvy Research
Exhibit 20: Urban/Rural industry break-up (2015)
Source: IBEF, Karvy Research
Urban
60%
Rural
40%
18
21
24
30
35
37
45
47
104
0
22
44
66
88
110
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY15
FY20E
FMCG market
size:
US$47.3 Bn
2015
FMCG market
size:
US$103.7 Bn
2020E
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.
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
2015.
Attractive opportunities:
1. Low penetration levels in rural market oer
room for growth.
2. Disposable income in rural India has
increased due to the direct cash transfer
scheme.
3. Growing demand for premium products.
Policy support:
1. Investment approval of up to 100% 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$100Mn.
Advantage
Indian
Source: IBEF, Karvy Research
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 20% 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. 600 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.
8
Apr 01, 2016
Godrej Consumer Products Ltd
Exhibit 21: Business Assumptions
Y/E Mar (Rs. Mn) FY15 FY16E FY17E FY18E Comments
Standalone
Revenue 44298 47033 51789 57177
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.
Revenue Growth (%) 8.6 6.2 10.1 10.4
EBITDA 8397 9181 9998 10745
Cost savings through strategic sourcing, better manufacturing,
improving productivity by 20%, Project Pi in India has end up saving
~Rs. 600 Mn incrementally in 9MFY16 and will continue to save in
future as well.
EBITDA Margins (%) 19.0 19.5 19.3 18.8
Consolidated
Revenue 82764 87821 97531 108472
The Darling business in Africa and revenues from Latin America
are growing at high teens and mid 20'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 9.5% CAGR from FY16E to FY18E.
Revenue Growth (%) 8.9 6.1 11.1 11.2
EBITDA 13653 14450 16868 19226
Project Iceberg in Argentina and price rise in international business
will further improve margins in next couple of quarters.
EBITDA Margins (%) 16.5 16.5 17.3 17.7
PAT (normalized) 9071 9811 11561 13295
With cost saving projects like Iceberg and Pi, GCPL expects to
normalise its margin.
Fully Diluted EPS (Rs.) 26.6 28.8 34.0 39.1
With very moderate level of capital expenditure required in the
business, GCPL has very strong balance sheet, earning an average
RoE of 25% & RoCE of 17% in last 4 years. GCPL's EPS is expected
to grow at 13.6% CAGR from FY16E to FY18E.
Fully Diluted EPS Growth (%) 19.4 8.2 17.8 15.0
Capex (ex. Acquisition) - cash
capex
(1904) (1635) (1766) (1908)
Net CFO 10046 11067 13556 14968
Net Debt 12755 11363 6549 (533)
The average net debt to equity is 0.4x during last 4 years on
consolidated basis.
Free Cash Flow 8141 9432 11790 13059
Source: Company, Karvy Research
Exhibit 22: Karvy vs Consensus
Karvy Consensus Divergence (%) Comments
Revenues (Rs. Mn)
FY16E 87821 90794 (3.3)
We have moderate outlook on volume and realizations growth. Revenue is
expected to grow at CAGR of 9.5% during FY16E-18E.
FY17E 97531 103627 (5.9)
EBITDA (Rs. Mn)
FY16E 9811 11413 (14.0)
With cost saving projects like Iceberg and Pi, GCPL expects to normalise its
margin. We also expect the advertisement expenditure made in past expected
to yield positive results in coming years enabling margin expansion.
FY17E 11561 13479 (14.2)
EPS (Rs.)
FY16E 28.8 33.4 (13.8)
We accommodate incremental savings from strategic cost saving projects.
FY17E 34.0 39.5 (14.0)
Source: Bloomberg, Karvy Research
9
Apr 01, 2016
Godrej Consumer Products Ltd
Exhibit 23: Revenue - Consolidated, YoY Growth (%)
Source: Company, Karvy Research
Exhibit 25: EBIT - Consolidated, YoY Growth (%)
Source: Company, Karvy Research
Exhibit 26: PAT - Consolidated, YoY Growth (%)
Source: Company, Karvy Research
Exhibit 24: EBITDA - Consolidated, YoY Growth (%)
Source: Company, Karvy Research
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 20’s respectively. The
consolidated revenue of GCPL is expected to grow at 9.5% CAGR from
FY16E to FY18E.
GCPL has consistently earned PAT in the range of 12% to 14% till FY13, the decline in margin was mainly due to 60% increase
in minimum wages, 45% increase in LPG & 33% hike in fuel prices in Indonesia, adverse sales mix and discount oered in Chile.
Going forward, with cost saving projects like iceberg and Pi, GCPL expects to normalise its margin.
Cost savings through strategic sourcing, better manufacturing, improving
productivity by 20%, Project Iceberg in Argentina and Project Pi in India
have end up saving ~Rs. 600 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.
64163
76024
82764
87821
97531
108472
31.9%
18.5%
8.9%
6.1%
11.1%
11.2%
-10%
10%
30%
50%
0
50000
100000
150000
FY13
FY14
FY15
FY16E
FY17E
FY18E
Revenue (Rs. Mn)
YoY Growth (%)
9824
11568
13653
14450
16868
19226
15.3%
15.2%
16.5%
16.5%
17.3%
17.7%
10%
13%
15%
18%
20%
0
5000
10000
15000
20000
FY13
FY14
FY15
FY16E
FY17E
FY18E
EBITDA (Rs. Mn)
EBITDA Margin (%)
9732
11376
13660
14330
16596
18865
15.2%
15.0%
16.5%
16.3%
17.0%
17.4%
10%
13%
15%
18%
20%
0
5000
10000
15000
20000
FY13
FY14
FY15
FY16E
FY17E
FY18E
EBIT (Rs. Mn)
EBIT Margin (%)
7961
7597
9071
9811
11561
13295
12.4%
10.0%
11.0%
11.2%
11.9%
12.3%
5%
8%
10%
13%
15%
0
3000
6000
9000
12000
15000
FY13
FY14
FY15
FY16E
FY17E
FY18E
PAT (Rs. Mn)
PAT Margin (%)
Exhibit 27: EPS - Consolidated, RoE & RoCE
Source: Company, Karvy Research
With very moderate level of capital expenditure required in the business,
GCPL has very strong balance sheet, earning an average RoE of 25% &
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 0.4x for last 4 years on consolidated basis. GCPL’s EPS
is expected to grow at 13.6% CAGR from FY16E to FY18E.
23.4
22.3
26.6
28.8
34.0
39.1
26.0%
21.4%
22.4%
20.9%
21.0%
20.4%
16.2%
16.2%
17.3%
16.1%
17.1%
18.0%
0%
10%
20%
30%
0
10
20
30
40
FY13
FY14
FY15
FY16E
FY17E
FY18E
EPS (Rs.)
RoE (%)
RoCE (%)
10
Apr 01, 2016
Godrej Consumer Products Ltd
Exhibit 29: Company Snapshot (Ratings)
Low High
1 2 3 4 5
Quality of Earnings
3
Domestic Sales
3
Exports
3
Net Debt/Equity
3
Working Capital Requirement
3
Quality of Management
3
Depth of Management
3
Promoter
3
Corporate Governance
3
Source: Company, Karvy Research
Exhibit 28: Advertisement & Publicity, as % of Total
Revenue
Source: Company, Karvy Research
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.
4439
5905
8916
11085
12066
12.0%
12.1%
13.9%
14.6%
14.6%
10%
12%
14%
16%
0
5000
10000
15000
FY11
FY12
FY13
FY14
FY15
Advertisement and publicity (Rs. Mn)
As % of Total Revenue
11
Apr 01, 2016
Godrej Consumer Products Ltd
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 & nancial 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 12-15 months.
Exhibit 30: PE Band
Source: Prowess, Karvy Research
Exhibit 31(a): Comparative Valuation Summary
CMP (Rs.)
Mcap
(Rs. Mn)
EV/EBITDA (x) P/E (x) EPS (Rs.)
FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E
GCPL 1381 470209 26.9 33.3 28.3 39.1 47.9 40.7 26.6 28.8 34.0
Jyothy Laboratories ltd 282 51094 22.6 25.4 22.7 34.4 31.5 27.2 6.7 9.0 10.4
Hindustan Unilever Ltd 870 1882892 35.0 32.3 28.6 46.9 44.9 39.5 18.6 19.4 22.0
Bajaj Corp Ltd 374 55209 22.2 18.6 16.7 28.1 23.1 19.9 13.3 16.2 18.8
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 9.4 12.1 13.6 22.4 20.9 21.0 4.7 13.2 32.6 82764 87821 97531
Jyothy Laboratories ltd 8.2 21.3 24.5 16.0 19.5 19.8 (7.0) (9.8) 1.3 15148 16418 17727
Hindustan Unilever Ltd 8.7 12.8 7.2 105.1 106.1 115.8 2.2 10.7 (2.9) 311997 333197 369367
Bajaj Corp Ltd 15.6 19.4 22.6 36.7 45.8 47.8 (11.0) (18.5) (19.5) 8238 8964 10235
Source: Bloomberg, Karvy Research
Key Risks
1). Competition. 2). Volatility in raw material prices
50
55
60
65
70
75
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
P/E (x)
Average
1SD
2SD
-1SD
-2SD
12
Apr 01, 2016
Godrej Consumer Products Ltd
Financials
Exhibit 32: Income Statement
YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
Revenues 76024 82764 87821 97531 108472
Growth (%) 18.5 8.9 6.1 11.1 11.2
Operating Expenses 64457 69111 73371 80663 89245
EBITDA 11568 13653 14450 16868 19226
Growth (%) 17.7 18.0 5.8 16.7 14.0
Depreciation & Amortization 819 908 989 1076 1172
Other Income 627 915 870 804 810
EBIT 11376 13660 14330 16596 18865
Interest Expenses 1074 1002 1042 937 858
PBT 10297 12487 13288 15659 18007
Tax 2104 2723 2791 3288 3781
Adjusted PAT 7597 9071 9811 11561 13295
Growth (%) (4.6) 19.4 8.2 17.8 15.0
Source: Company, Karvy Research
Exhibit 33: Balance Sheet
YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
Cash & Cash Equivalents 7048 8942 9936 10001 12791
Trade Receivables 7321 8046 8060 8818 9807
Inventories 10821 10717 11232 12233 13317
Loans & Advances & Others 39335 44542 50259 53286 55427
Investments 1363 1857 1857 1857 1857
Net Block 17360 17315 17961 18651 19388
Total Assets 83247 91419 99306 104846 112587
Current Liabilities & Provisions 25885 24659 24789 25136 25471
Debt 17023 21697 21299 16550 12258
Other Liabilities 2586 1956 2656 3496 4461
Total Liabilities 43242 46692 46437 42066 38143
Shareholders Equity 340 340 340 340 340
Reserves & Surplus 37414 42767 50221 59323 70057
Total Networth 37754 43107 50562 59664 70397
Total Networth & Liabilities 83247 91419 99306 104846 112587
Source: Company, Karvy Research
13
Apr 01, 2016
Godrej Consumer Products Ltd
Exhibit 34: Cash Flow Statement
YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
PBT* 10302 12659 13288 15659 18007
Depreciation 819 908 989 1076 1172
Interest 1074 1002 1042 937 858
Tax Paid (2378) (2573) (2791) (3288) (3781)
Inc/dec in Net WC 1565 (975) (267) (466) (920)
Other Income (448) (718) (427) (362) (368)
Other non cash items 225 (257) (767) 0 0
Cash ow from operating activities 11159 10046 11067 13556 14968
Inc/dec in capital expenditure (1329) (1904) (1635) (1766) (1908)
Inc/dec in investments (4427) (10794) 0 0 0
Others 808 560 427 362 368
Cash ow from investing activities (4948) (12138) (1208) (1404) (1540)
Changes in Debt (3213) 2995 (5467) (8690) (7217)
Dividend paid (1991) (2111) (2357) (2459) (2562)
Interest paid (1004) (1189) (1042) (937) (858)
Others 3 185 0 0 0
Cash ow from nancing activities (6205) (120) (8866) (12086) (10637)
Net change in cash 6 (2213) 994 65 2790
Source: Company, Karvy Research, *For FY14, FY15, PBT before exceptional items
Exhibit 35: Key Ratios
YE Mar FY14 FY15 FY16E FY17E FY18E
EBITDA Margin (%) 15.2 16.5 16.5 17.3 17.7
EBIT Margin (%) 15.0 16.5 16.3 17.0 17.4
Net Prot Margin (%) 10.0 11.0 11.2 11.9 12.3
Dividend Payout Ratio (%) 23.5 20.6 20.0 17.7 16.0
Net Debt/Equity (x) 0.3 0.3 0.2 0.1 (0.0)
RoE (%) 21.4 22.4 20.9 21.0 20.4
RoCE (%) 16.2 17.3 16.1 17.1 18.0
Source: Company, Karvy Research
Exhibit 36: Valuation Parameters
YE Mar FY14 FY15 FY16E FY17E FY18E
EPS (Rs.) 22.3 26.6 28.8 34.0 39.1
DPS (Rs.) 5.3 5.5 5.8 6.0 6.3
BVPS (Rs.) 110.9 126.6 148.5 175.3 206.8
PE (x) 38.5 39.1 47.9 40.7 35.4
P/BV (x) 7.7 8.2 9.3 7.9 6.7
EV/EBITDA (x) 26.1 26.9 33.3 28.3 24.4
EV/Sales (x) 4.0 4.4 5.5 4.9 4.3
Source: Company, Karvy Research; *Represents multiples for FY14 & FY15 are based on historic market price
14
Apr 01, 2016
Godrej Consumer Products Ltd
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : <5%
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