Buy Godrej Consumer Products Ltd For Target Rs. 1,130 - Motilal Oswal Financial Services
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* Godrej Consumer (GCPL)’s consolidated revenue and gross profit was in line, while EBITDA was marginally higher than our estimates. The company delivered a strong volume growth of ~13% YoY in the India branded business. Importantly, EBITDA grew ~32% YoY despite a ~21% YoY rise in consolidated ad-spends.
* Outlook on the margin is getting better, led by decreasing input costs and cost-saving initiatives. The management also reiterated its strategy, wherein it would concentrate on category development activities, simplification of business, and focus on people & planet along with profitability.
* Healthy pace of earnings (mid-20’s CAGR on EBITDA and PAT over FY23- FY25E) is likely to be led by: a) superior growth in highly profitable markets, such as India and Indonesia; b) focus on profitability in Africa; and c) continuing working capital improvement in the overseas business. We reiterate our BUY rating with a TP of INR1,130 (based on SoTP valuation: 55x domestic business, 25x Indonesia business, 15x GAUM, other business and RCCL).
Sales/gross profit in line; PAT beat led by lower tax rate
* Godrej Consumer (GCPL)’s 4QFY23 consolidated net sales grew 9.8% YoY to INR32.0b (in line).
* Gross profit grew 17.4% YoY to INR16.9b (in line). EBITDA rose 32.3% YoY to INR6.6b (est. INR6.3b) in 4QFY23, PBT was up 42.8% YoY to INR5.8b (est. INR5.3b), while Adj. PAT grew 23.6% YoY to INR4.7b (est. INR3.8b).
* Consolidated comparable constant currency sales grew 14% YoY in 4Q.
* Gross margin expanded 340bp YoY to 52.9% (est. 51.9%).
* As a percentage of sales, higher ad spends (up 70bp YoY to 7%), lower other expenses (down 80bp YoY to 15.7%) and stable staff costs (at 9.4%) led to EBITDA margin of 20.8% (est. 19.7%) during the quarter.
* Consolidated volumes grew 6% YoY.
* Sales/EBITDA grew 8.5%/6.0% to INR133.2b/INR25.4b in FY23, while Adj. PAT remained flat at INR17.6b.
Highlights from the management commentary
* FY24 growth would be led by volumes with low price growth. The Indian business is expected to experience lower pricing growth, while the international business could see higher pricing growth.
* The management believes that the HI (home Insecticides) category performed well, and it expects the category to continue experiencing a high growth phase for the next 15-20 years. Within the HI category, mosquitoes are the management's first priority, followed by cockroaches and out-ofhome HI.
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