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In-line revenue; international margin shines

GCPL’s 3QFY21 was a mixed bag with in-line revenue but a marginal miss in EBITDA. Domestic revenue/EBIT grew by 11/5% YoY, while International revenue/EBIT grew by 11/21% YoY. Domestic volume growth was at 7%, with strong market share gains, specifically in soaps. Recovery in discretionary demand drove the growth in Hair Colours while an increased focus on cleanliness aided soaps. HI was dragged by a weak performance in the burning format, although aerosol, electric and non-mosquito portfolio posted strong growth. GCPL continued to improve its performance in GUAM (17% cc growth) and LATAM & SAARC (35% cc growth). GUAM and LATAM led the international margin expansion. The company is focusing on expanding the addressable market for the India business along with improving performance in ex-Indonesia geographies. We marginally increase our EPS estimate for FY22 while maintaining it for FY23. We value GCPL at 38x P/E on Mar-23E EPS to derive a target price of Rs 786. Maintain ADD.

* Healthy domestic growth, GUAM and LATAM standout: Revenue grew by 10% YoY (+2% in 3QFY20 and +11% in 2QFY21) in-line with our estimates. India revenue saw 11% YoY growth (+1% in 3QFY20 and +11% in 2QFY21) with 7% YoY vol growth. HI/Soaps/Hair Colour grew by 7/15/14%. HI, Hygiene and Value For Money products (81% of portfolio), delivered 14% growth. HI was at 5% growth (7% in India); Hygiene (incl soaps) at 19% and value for money clocked 22%. Company continued to gain market share for soaps. International revenue was up 8% YoY (cc +11% YoY), led by GUAM which clocked 17% YoY cc growth and LATAM & SAARC, which grew by 35% YoY. Indonesia disappointed with cc revenue decline of 2% YoY.

* Weak India margin, International margin shines: India GM was down by 271bps YoY to 57% (+15bps in 3QFY20 and -109bps in 2QFY21). Employee/A&P expenses were up by 6/11% YoY while other expenses declined by 3% YoY. India EBITDA/EBIT grew by 7/5% while International EBIT was up by a strong 21% YoY. GUAM/LATAM saw sharp 190/900bps YoY expansion in EBITDA margin. Consolidated EBITDA saw growth of 13% YoY (HSIE 15%). APAT was up by 12% YoY (HSIE 15%) to Rs 4.9bn.

* Call takeaways: (1) Burning format was a drag on the HI portfolio while other segments clocked strong growth; (2) hygiene growth was driven by a structural change among consumers with increased focus on cleanliness; (3) GCPL has continued to gain market share in soaps and its is now the second largest player; (4) the company has targeted reaching 200k retail stores and it is well on track to do so; (5) GT has 33% mix in India while it is 50% in Indonesia.

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