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Q3FY21 performance was similar to Q2 – continued double-digit growth in India and Africa while Indonesia disappointed. India growth was driven by soaps (gaining market shares in an inflationary environment) and Hair Colour (strong turnaround) while HI remained subdued (+7%; burning format underperformed). Africa sales grew 17% (CC terms) and margins expanded (to 14%) driven by scale and cost saving initiatives. Indonesia declined 2% (CC terms) due to weak macros and price competition in wipes category. Sustaining strong growth momentum requires (1) acceleration in India HI (through innovations) and (2) improvement in Indonesia (improve presence in GT). Early signs of turnaround in Africa business inspire confidence in consensus (and our) expectations of a turnaround under the new leadership. Reiterate ADD.

* Double-digit revenue growth continued: Consolidated revenue / EBITDA / PAT grew 10%/ 10% / 13%. India business sales grew 11% with 7% domestic volume growth. Soaps grew 15% driven by continued market share gains, micro marketing initiatives and new launches and Hair Colours recovered to 14% growth driven by an uptick in overall category growth. However, Household Insecticides grew just 7% driven by weakness in burning format (electric format grew double-digit). HI, Hygiene and VFM portfolio (81% of consolidated business) grew 14%. Hygiene category (including soaps) continued its strong momentum with 19% growth and VFM grew 22% while others declined 3%.

* International – Africa and LatAm performance recovered while Indonesia decelerated: International business sales grew 8% with 17% EBITDA growth; EBITDA margin grew 120bps YoY to 16.3%. However, Indonesia business declined 2% in CC terms (flat in INR terms) impacted by adverse macroeconomic factors and higher competitive intensity in wet wipes. Indonesia EBITDA margin expanded 70bps to 25.3%. On the other hand, there was robust recovery continued in GAUM (Africa, USA, and Middle East) with revenue growth of 17% (CC terms), EBITDA margin expansion of 190bps YoY to 14.1%. LatAm and SAARC business grew 35% (CC).

* Valuation and risks: We cut our earnings estimates by ~5%; modelling revenue / EBITDA / PAT CAGR of 10% / 12% / 12% over FY20-23E. Maintain ADD with a SoTP-based revised target price of Rs800 (Rs850 earlier). At our target price, the stock will trade at 40x P/E multiple Mar-23E. Key downside risk is structural deceleration in India household insecticides

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