Management Speak: Godrej Consumer (Outperformer) - Growth levers in place!
We present key takeaways of our interaction with Godrej Consumer Products Ltd (GCPL) from its annual analyst meet. GCPL’s management exuded confidence on its India business returning to double digit-growth in FY19 after 8% CAGR over last 3 years. Despite superior margins in India business, management believes there are several levers that can continue to drive profits ahead of sales growth. On the international piece, initiatives do drive gradual recovery in Indonesia revenues and improving margin profile in Africa will be visible in FY19. Though concerns on Indonesia’s growth and currency headwinds persist, we remain confident on GCPL’s ability to create new growth levers over the longer term. Maintain Outperformer with a target price of Rs1239.
India revenue growth to accelerate: Over the last 3 years, India revenue CAGR has been 8%. Management estimates GCPL’s revenues would return to double-digit growth in FY19 driven by a) higher growth in core brands through increased penetration and premiumization and b) rising pace of new launches - the company has a ready pipeline of new products developed over last two years.
India business has potential for margin improvement: India EBITDA margins at 26% are currently at an all-time high. However, management sees further improvement through superior product mix, cost savings led by Project Pi and optimization of above the line spends. Management clarified that margins will not be prioritised over volume growth.
Driving international businesses: GCPL expects to drive revenues in its key markets of Indonesia (14% of consolidated revenues) and Africa (22% of consolidated revenues) through innovation, improved supply chain and cost reduction. Management expects to achieve double-digit constant currency revenue growth in both markets improve its margin profile in Africa and FY19.
Balance sheet improvement to drive return ratios: GCPL has reduced net working capital days from 27 to 15 over FY16-18E. Management believes opportunities in Africa will help the company further reduce working capital and improve cash flows and return ratios.
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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