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* GCPL’s consolidated revenue and operating profit were in line with estimates, whereas adj. PAT missed our estimate by 14.7%, affected by the currency depreciation in Nigeria. Reported PAT declined 7.6% YoY due to a stamp duty payment on the acquisition of the Raymond business.

* GP margin expanded by 710bp YoY/80 bp QoQ to 53.7%. Notably, EBITDA margin improved 280bp YoY despite a 59% rise in consolidated ad-spends.

* The RCCL business incurred an operating loss due to reducing inventory levels from 80-90 days to 10 days. However, the management aims to achieve equivalent profitability to the organic business.

* A healthy pace of earnings growth (EBITDA/PAT CAGRs in mid-20s over FY23-FY25E) is likely to be led by: a) superior growth in highly profitable markets such as India and Indonesia; b) volume growth; and c) continuing capacity enhancement by capex in the organic portfolio. We reiterate our BUY rating with a TP of INR1,200 (based on 45x FY25 EPS).

Sales and operating profit in line; PAT miss due to higher tax rate

* Consolidated net sales grew 10.4% YoY to INR34.5b (est. INR34.1b).

* Gross profit rose 27.3% YoY at INR18.5b (est. INR18.2b). EBITDA increased by 28% YoY to INR6.8b (est. INR6.8). PBT grew 23.1% YoY to INR5.6b (est. INR6.1b), while adj. PAT grew 15.5% YoY to INR4.0b (est. INR4.7b).

* Reported PAT declined 7.6% YoY to INR3.2b in 1QFY24.

* Consolidated comparable constant currency sales grew 15% YoY and the organic business saw 13% YoY growth in 1QFY24.

Gross margins expanded 710bp YoY to 53.7% (est. 53.2%).

* As a percentage of sales, higher ad spends (+280bp YoY to 9.3%), higher other expenses (+80bp YoY to 15.6%) and higher staff costs (+80bp YoY to 9.1%) led to EBITDA margin expansion of 270bp YoY to 19.8% (est. 19.7%).

* Consolidated volumes grew 10% and organic volume rose 8%.

* Exceptional items included a stamp duty payment of INR775.2m for the acquisition of the RCCL business and INR42.6m for other restructuring costs.

Highlights from the management commentary

* The management has indicated four growth metrics: 1) organic underlying volume growth, 2) organic CC growth, 3) operating cash flows, and 4) EBITDA including forex.

* The underlying sales growth was impacted by a decrease in soap prices and the depreciation of the Nigerian currency, the Naira, which is anticipated to have a lasting effect for several quarters.

* The effects of the Naira's depreciation became evident in the latter part of June 2023. The exchange rate was 450 Nigerian Naira/USD in May 2023, and it has subsequently risen to 750. GCPL procures at an average rate of 650 Nigerian Naira/USD.

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