Godrej Consumer Products' Q2FY18 results (Outperformer) - Domestic performance drives earnings beat!
Q2FY18 result highlights
- Consolidated revenues were up 2.5% yoy at Rs25bn (est:Rs25.4bn); EBITDA increased 14.7% yoy at Rs5.3bn(est: Rs5bn) and Adjusted PAT increased 14.7% yoy at Rs3.6bn (est Rs3.5bn).
- Comparable revenues increased by 6% yoy (constant currency growth of 10% yoy), with India business revenue growth of 11% yoy and International business sales growth of 2% yoy.
- India business sales were led by 10% yoy volume growth. On comparable basis, HI, Soaps and Hair colors sales grew by 4%,26% and 4% yoy respectively while other brand sales increased by 27%.
- Consolidated gross margins were up 100bps yoy. A&P spends decreased by 10bps yoy to 8.5% (standalone A&P down 60bp to 12.7%). Staff cost and other expenses increased by 9.4% and 0.8% yoy respectively. Resultant EBITDA margin increased by 160bps to 21.3% (standalone margins increased by 230bps yoy to 24.2%).
- International business net sales increased by 2% yoy (constant currency growth of 9% yoy) led by Africa, Latam and Europe. In constant currency terms, Africa, Latam and Europe sales increased by 13%/30%/15% while Indonesia sales declined by 7% yoy.
Key positives: Healthy volume recovery in India led by Soaps
Key negatives: Moderate growth in hair color & HI. Weak Indonesia business performance
Impact on financials: Our earnings estimates remain unchanged.
Valuations & view
GCPL’s domestic volume growth is the most impressive given that it had a high base in Q2FY17 and Q1FY18 volumes did not decline like peers. Continued mix improvement and effective cost management continues to drive margins ahead of expectations; we expect margin improvement to continue in 2HFY18 as well. Weakness in the international business has abated as compared to Q1FY18 with the situation in Indonesia gradually improving. As Africa revenue growth trajectory improves and Indonesia declining trend abates, we expect a stronger growth from international markets going forward. The performance in Q2FY18 validates our thesis that Q1FY18 weakness was more of a blip; we maintain our positive outlook on GCPL. Maintain Outperformer.
Godrej Consumer Products is a consumer goods company, manufacturing and marketing Household and Personal Care products. Co. is engaged in the manufacture and sale of soaps, cosmetics and detergents. Co.'s Personal Care products include Godrej No.1 - soaps; Cinthol - soaps, deodorants, talcs and shower gels; Godrej protekt - washes, a hand sanitiser and a personal mosquito repellent spray; and Godrej expert - creme hair colour in a sachet, powder hair colour with a unique gel technology, and herbal hair colour. Co.'s home care products include Good Knight - mosquito repellents; HIT - household insecticides; Godrej aer - home and car air fresheners; and Godrej Ezee - liquid detergents.
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