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Jigsaw falling in place; retain top pick status

Q4FY21 performance was impressive with 24% domestic revenue growth in JanFeb’21, continued profitable recovery in Africa while Indonesia stabilised. India growth was driven by soaps (gaining market shares in an inflationary environment) and HI (broad based across formats) while Hair Colour continued recovery (with category uptick). Africa sales grew 36% (CC terms) and margins expanded (to 11%; +710bps) driven by scale and cost saving initiatives. Indonesia grew just 4% (CC terms) due to weak macros and price competition in wipes category.

We believe strong growth momentum is likely to continue driven by (1) acceleration in India HI (through innovations in burning formats to recruit consumer and upgrade to premium formats) and (2) improvement in Indonesia (increasing presence in GT), (3) profitable turnaround in Africa under the new leadership. Further, appointment of Sudhir Sitapati (ex-HUL) as MD & CEO (effective 18th Oct’21) is a likely a re-rating event (See report Leadership matters). Our stock rating moves up a notch to BUY (from ADD); revised TP of Rs850.

* Double-digit revenue growth continued:

Consolidated revenue / EBITDA / PAT grew 27%/ 15% / 42%. India business sales grew 35% (24% in Jan-Feb’21) with 29% domestic volume growth (2-year CAGR of 5%). Soaps grew 41% driven by continued market share gains due to micro marketing initiatives and new launches. Household Insecticides grew just 34% (28% globally) driven by broad based performance in burning as well as premium formats. Hair Colours grew by 25% driven by an uptick in overall category growth. HI, Hygiene and VFM portfolio (81% of consolidated business) grew in double-digits. Hygiene category (including soaps) continued its strong momentum with 38% growth, VFM grew 27% and others grew by 17%. Domestic EBITDA margins decline by 470bps to 22.5% due to input cost pressure (+320bps), higher employee cost (+400bps) due to reversal of one-time variable pay and higher ad-spends (+70bps).

* International –

Strong performance in Africa and LatAm recovered while Indonesia maintained its momentum: International business sales grew 18% with 22% EBITDA growth; EBITDA margin expanded 50bps YoY to 17.2%. Indonesia business grew 4% in CC terms impacted by adverse macroeconomic factors and higher competitive intensity in wet wipes. Indonesia EBITDA margin expanded 230bps to 35.4% driven by cost saving initiatives. On the other hand, robust recovery continued in GAUM (Africa, USA, and Middle East) with revenue growth of 36% (CC terms), EBITDA margin expansion of 710bps YoY to 10.9% driven by scale leverage and cost saving initiatives. LatAm and SAARC business grew 54% (CC terms) while EBITDA margin declined by 430bps due to upfront marketing investments.

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