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Another good quarter

Q1FY22 was impressive with 12% domestic revenue growth (2-year CAGR), continued profitable recovery in Africa while Indonesia was muted. India growth was driven by soaps and hygiene (continued market shares gains in an inflationary environment) and HI (broad-based across formats) while Hair Colour continued to recover. Africa sales grew 11% (CC terms; 2-year CAGR) and margins expanded (to 9.9%) driven by scale and cost saving initiatives. Indonesia was flat (CC terms) due to weak macros and impact of second wave.

We believe strong growth momentum is likely to continue driven by (1) acceleration in India HI (through innovations in burning formats to recruit consumer and upgrade to premium formats) and (2) recovery in Indonesia (more a macro issue as trajectory was good prior to Covid), (3) profitable turnaround underway in Africa. We believe GCPL is looking at a bigger play in the fabric care category – it has also launched detergent pods (under Ezee brand). Appointment of Mr. Sudhir Sitapati continues to keep the consensus (including us) excited. ADD.

* Double-digit revenue growth continued:

Consolidated revenue / EBITDA / PAT grew 24%/ 27% / 38%; on a 2-year CAGR basis revenue was up 11%. India business sales grew 19% (12% on a 2-year CAGR basis) with 15% domestic volume growth. Home Care grew 21% yoy (2-year CAGR: +17%) on the back of a doubledigit growth in HI (broad-based across burning formats and premium formats of aerosols, electrics and non-mosquito portfolio).

Demand for air fresheners improved sequentially while home hygiene products saw improved offtake in the second wave. Personal care grew 17% (2-year CAGR: +9%) with continued good momentum in soaps (market share gains; calibrated price increases taken to offset high input costs) and recovery in hair colours (shampoo-based hair colour is scaling up well). Domestic EBITDA margins declined by 130bps to 26.0% due to input cost pressure – gross margins down 360bps. Operating leverage benefit aided costs as a % sales – employee cost (-120bps) and other expenses (-110bps).

* International – Strong performance in Africa and LatAm while Indonesia decelerates:

International business sales grew 30% (2-year CAGR: +9%) with 74% EBITDA growth. Indonesia business was flat in CC terms (2-year CAGR: +3%) impacted by adverse macroeconomic factors and second-wave-led operating restrictions. Indonesia EBITDA margin was down only 20bps to 23.4% despite weak topline performance.

On the other hand, robust recovery continued in GAUM (Africa, USA, and Middle East) with revenue growth (CC) of 60% (2-year CAGR: +11%), EBITDA margin of 9.9% compared to a loss in the Q1FY21. Management highlighted (1) strong growth in southern and west Africa and (2) continued GTM initiatives in key countries.

* Valuation and risks:

We increase our earnings estimates by ~3%; modelling revenue / EBITDA / PAT CAGR of 11% / 15% / 14% over FY21-23E. Downgrade to ADD (from BUY) with a SoTP-based revised target price of Rs1,100 (Rs1,000 earlier). At our target price, the stock will trade at 49x P/E multiple Mar-23E. Key downside risk is structural deceleration in India household insecticides and steep input cost pressure.

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