MOSL: GODREJ CONSUMER (Neutral)-Topline growth trajectory remains a concern
GODREJ CONSUMER: Topline growth trajectory remains a concern
(GCPL IN, Mkt Cap USD8.9b, CMP INR604, TP INR620, 3% Upside, Neutral)
** 1QFY20 cons. net sales were down 5.2% YoY to INR23.5b (v/s est. INR25.5b). Consol. EBITDA was up 2.2% YoY to INR4.6b (v/s est. INR4.4b), while Adj. PAT was down 6.7% YoY to INR3b (v/s est. INR3b), adjusted for deferred tax gain of INR1.1b. Net profit without exceptions and one-off items declined 3% YoY (according to the press release).
** India branded business volume grew 5%. Sale of Soaps was up 3% YoY; Household Insecticides was down 4% while the Hair Color business sales stood flat YoY. Management attributed the subdued performance to general slowdown in staples consumption and expects gradual recovery in the coming quarters.
** Consol. gross margins were up 130bp YoY to 57.1%. Low ad spends as % of sales (down 20bp YoY to 8.2%) and low staff costs as % of sales (down 40bp YoY to 11.3%) was offset by higher other expenses as % of sales (up 60bp YoY). This led to EBITDA margin expansion of 140bp YoY to 19.5%.
** Concall key highlights: (1) Management believes that 2QFY20 volume growth in the domestic business should be better than 1QFY20; (2) Profitability in Africa should be better sequentially, but management does not expect sharp recovery in margins to FY18 levels soon.
** Valuation and view: With topline outlook appearing hazy in both domestic and international business, there is no indication that the earnings slowdown (7% PBT growth in the past three years) will turn around materially to anywhere close to earlier levels. Between FY08-16, the company reported over 20% CAGR growth on all fronts - Sales, EBITDA, PAT and EPS - among the best of breed. Valuations of 32.4x FY21, while cheaper than peer average of around 35x, appears fair, if one considers weaker-than-peer earnings visibility and ROCE of 20%, well below peer average of over 30%. Maintain Neutral with a target price of INR620 (32x FY21, 10% discount to peer average).
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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