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Strong quarter for India and Africa business; all eyes now on what new CEO brings to the table; maintain ADD

Quarter Highlights

* Result highlights – Strong growth delivery with consolidated sales growth of 24.4%, EBITDA margin up 40bps leading to growth of 27% and PBT growth of 37%.

* India segmental growth – 15%/20% volume/value growth in India led by 14% growth in Home care and 29% in Personal care, also double‐digit growth in household insecticides.

* International markets – Constant currency growth of 60% in GAUM, 48% in Latam/SAARC while Indonesia was flat.

* Margins – Overall margin improvement of 90bps to 21.3% led by a 1,170bps surge in GAUM margins, only 90bps fall in India margins led by stringent cost saving measures.

Valuation and view –

1Q performance was strong on both growth and margin fronts. We believe GCPL is well placed to deliver 10% growth with stable margins in FY22 despite a relatively high base of 12% growth in FY21 and muted performance in Indonesia. The India business is witnessing broad‐based growth with HI and soaps categories continuing FY21 momentum and other categories making a strong recovery. Recent launches like Goodknight Jumbo Fast Card and Protekt Magic Handwash are prime examples of successful innovation. The Africa business is also picking up well while Indonesia is also expected to start recovering soon. Portfolio scale‐up in under penetrated categories like HI and hair colors, entry into newer categories in India and pruning down some unprofitable international businesses along with recent leadership changes (new CEO from HUL and new head of Africa business from Nestle) which can alter the long‐term growth trajectory for the business, are key drivers for the multiple re‐rating of the company.

We are rolling our valuations to FY24E and building in a 10%/12%/13% revenue/EBITDA/PAT CAGR over FY21‐24E. We reiterate our ADD rating with a TP of Rs 1,099, based on 45x FY24E earnings, in‐line with peers like Marico, Dabur, TCPL. We continue to expect that stock returns (combination of higher growth trajectory and multiple re‐rating) from the expected changes from the new leadership will be front‐ended.

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