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MOSL: GODREJ CONSUMER (Neutral)-In-line results, Top-line growth still a concern

Godrej Consumer: In-line results, Top-line growth still a concern

(GCPL IN, Mkt Cap USD10.6b, CMP INR742, TP INR766, 3% Upside, Neutral)

 

• GCPL’s results, albeit in line, indicate no spark of revival. Similarly, management commentary does not express any significant optimism that the modest earnings growth trend for five years now (11.2% CAGR over FY15-20) will be any different for the next two years.
• With RoCE at ~17% in FY20 also significantly lower than peers and unlikely to increase sharply over the next two years, valuations of 38.7x FY22E EPS appear fair. We thus maintain our Neutral stance on the stock. 

In-line result; domestic business volumes up 7% YoY

• net sales increased 2% YoY to INR27.8b (our estimate: INR28.3b) in 3QFY20. EBITDA was up 2.4% YoY to INR6.3b (our estimate: INR6.6b), PBT increased 5% YoY to INR5.6b (our estimate: INR5.7b), and adj. PAT grew 7.7% YoY to INR4.5b (our estimate: INR4.3b) aided by a lower-than-expected tax rate of 19.5%.
• Lower prices in soaps and hair colour resulted in 2% sales growth despite 7% volume growth
• gross margin expanded 40bp YoY to 56.7%. Lower ad spends (-50bp YoY) and staff costs (-40bp YoY) were offset by higher other expenses (+130bp YoY). EBITDA margin expanded by 10bp YoY to 22.7%.
• 9MFY20, Revenue declined 1.3%, while EBITDA/PAT was up 3.9%/6.3%.
• India branded business volumes grew 7% YoY, largely led by NPD, effective marketing campaigns and consumer offers. Sales declined 4% YoY in soaps, rose 3% in household insecticides and were down 4% YoY in hair color.
• International business: On a CC basis, comparable net sales grew 11% YoY (after adjusting for Europe business divestment). Indonesia CC sales were up 9% YoY. Africa, USA and Middle East (GAUM) sales increased 6% YoY, while ‘Others’ (LATAM, Europe and SAARC) sales after adjusting for Europe business divestment were up 38% YoY on a CC basis.