GODREJ CONSUMER PRODUCTS – FY20
GCPL’s FY20 Annual Report analysis highlights a muted operating performance. EBITDA increased marginally by 1.2% to INR21.4b, primarily due to the outbreak of COVID-19. The India and GAUM (Godrej Africa, US, Middle East) businesses were impacted, while Indonesia delivered robust growth. The company recognized exceptional loss of INR.0.8b, primarily on account of the impairment of goodwill/intangibles. We note that the company changed the estimates for carrying out the impairment evaluation of intangibles/goodwill, which stood at INR79.7b – 101% of NW. GCPL’s earnings to cash flow conversion declined to 90% (FY19: 102%) on account of increased working capital requirements in India and Africa. OCF post-interest declined to INR14.4b (FY19: INR15.1b). Standalone RoCE declined to 65% (FY19: 86%) due to a weak operating performance, coupled with an increase in capital intensity (financed partially by incremental debt). This led to consolidated RoCE declining to 18.7% (FY19: 20.1%).
* Indonesia supports performance in a challenging environment: Indonesia posted healthy 17% EBITDA (adj.) growth to INR4.5b. Conversely, India EBITDA (adj.) fell 4.2% to INR14.2b and GAUM EBITDA (adj.) declined 14.6% to INR2.4b. Declines in India and GAUM were primarily attributable to the advent of COVID-19 in 4QFY20. For the first three quarters of FY20, India witnessed (adj.) EBITDA growth of 2% to INR11.2b, while GAUM EBITDA (adj.) remained flattish at INR2.2b.
* Impairment losses recognized; estimates to assess recoverable value changed: In FY20, the company recognized exceptional loss of INR0.8b, primarily on account of impairment loss on goodwill/intangible assets in Argentina (of INR0.3b) and Africa (INR0.4b). It also reduced estimates for discount rates (to 6.67–20.8% from 11.9–24.6% in FY19) and terminal growth rate (to 2–7% from 3–8% in FY19) during the year, used for assessing the recoverable value. Furthermore, the stipulated express forecast period for Africa was increased to 10 years from 5 years.
* Working capital requirements rise: The consolidated cash conversion cycle increased to 22 days in FY20 from 16 days in FY19 due to a rise in the number of inventory days (to 63 days from 55 days in FY19), primarily in India and Africa. While the consolidated payable days remained flattish (at 91 days v/s 90 in FY19), it declined significantly in the standalone entity (to 83 days v/s 94 days in FY19). This was more than offset by an increase in payables for subsidiaries. Over the last few years, the cash conversion of subsidiaries has improved significantly (64 days in FY20 v/s 99 days in FY18), largely led by an increase in payable days (102 days in FY20 v/s 72 days in FY18)
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