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Growth momentum continued; Outlook positive

Godrej Consumer Products Ltd (GCPL) is one of India’s leading home-grown household & personal-care company. It also has presence in other countries like Indonesia, Africa, US, Middle East, among others.

* Revenue rose 26.8% YoY to Rs. 2,731cr, led by double digit growth in Household insecticides, Hygiene and Value-for-Money products.

* EBITDA grew 20.6% YoY on higher sales and improved product mix. EBITDA margins however contracted 110bps due to higher input costs. Adj. PAT grew 19.9% YoY helped by lower interest and tax outgo.

* We remain positive on the stock with strong demand in hygiene business and resurgence in household insecticides. We expect margins to improve gradually in coming quarters and reiterate our BUY rating on the stock with a rolled forward TP of Rs. 930 based on 43x FY23E EPS.

Topline grows on sustained demand

Q4FY21 revenue increased by 26.8% YoY to Rs. 2,731cr, aided by continued demand for company’s products across all the geographies. Domestic business saw impressive growth of 34.6% YoY, led by strong growth momentum in soaps (~41% YoY) and household insecticides business. Africa business grew 30.2% YoY to Rs. 630cr (+36% YoY CC), backed by good traction for Good Knight power shots aerosol and new go-tomarket initiatives in key regions of Africa.

Indonesian business experienced recovery with 5% YoY growth to Rs. 471cr (~4 YoY CC) on strong performance of Hygiene products and recovery in Household insecticides and Air fresheners products. With current COVID scenario, we expect strong demand for Hygiene segment in the nearterm. The Company looks to scale up the Hygiene business and is focusing on strong innovation growth in this business.

Gross margins impacted, but improvements expected from hereon

EBITDA rose 20.6% YoY to Rs. 575cr in Q4FY21, on higher volumes, improved sales realizations and expansion of market share across geographies. However, EBITDA margin shrank 110bps to 21.0% owing to pressure on gross margins in India, LATAM & SAARC regions, impacted by lag between increase in raw material costs and price hikes on products. Adjusted for one-off items, PAT increased 19.9% YoY to Rs. 379cr, benefitting from lower interest costs (-62.8% YoY) and taxes (-45.5% YoY).

Key highlights

* GCPL appointed Sudhir Sitapatito be its new MD and CEO effective 18th Oct, 2021. Mr. Sitapati came from HUL where he spent 22+ years leading teams across functions within India, Europe, SE Asia & Africa regions.

* Management is working on scaling up its rapidly growing ecommerce channel, with rural growth at 1.4x that in urban areas.

* Company recently launched Godrej ProClean, a floor cleaning product, with a focus on strengthening Hygiene business portfolio amidst the pandemic.

Valuation

GCPL posted double digit growth despite lockdown restrictions imposed in some parts of the country. With COVID acting as a tailwind, company has seen rapid growth in its Hygiene business, while there’s strong revival seen in its insecticide offerings. Despite ongoing margin pressures, we expect GCPL’s growth momentum to continue in the months ahead, driven by strong demand for its existing products coupled with new launches and change in leadership. Hence, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 930 based on 43x FY23E EPS.

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