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Soft quarter but outlook remains stable; maintain BUY given multiple triggers amidst inexpensive valuations

Our view

GCPL reported a soft quarter both on growth and margin fronts led by a 7% decline in India‐home care business, continued sluggishness in Indonesia business and sharp margin fall in international business especially in South Africa. Soft growth in its key HI, Air freshener and Hair care category and 15% cc decline in Indonesia business dragged topline despite c.12% price hikes taken by the company. While the Africa margin plunge was exacerbated by a one‐off inventory pilferage, we expect margin to improve on better growth prospects. Management indicated that Q1 can see further margin pressures owing to continued inflation in palm and crude prices post February and a pick‐up in A&P spends, we see margin improvement only from Q3 onwards. Double‐ digit growth in personal care, fabric care were key positives. HI growth should recover after the recent volatility with increasing penetration, marketing spends and category innovation, share gains should continue in soaps and other categories should see steady growth. Africa business and LATAM & SAARC are picking up well with improving operating efficiency (barring Q4 blip in SA) while lackluster Indonesia business performance should continue into FY23 as well. We believe category development‐led scale‐up in under penetrated categories like HI and hair colors in India in addition to strong growth in Africa can alter the long‐term growth trajectory towards double‐digits. We maintain our BUY rating despite near‐term headwinds given steep correction leading to comfortable valuations and multiple potential re‐rating triggers.

Result Highlights

* Result highlights – Revenue growth of 6.8%, India business growth of 9% with 3% volume decline on a base of +29%%, Gross margin contracted 620bps YoY given ‐ 410bps in India business, EBITDA margin came in at 16% vs 20.1% YoY largely due to 810bps fall in Indonesia business.

* India segmental growth –  ‐3%/9% volume/value growth in India led by  ‐2% growth in Home care and 20% in Personal care, relatively soft performance in HI, air freshener and Hair colours.

Valuation

We trim our estimates by 3‐8% to factor in margin headwinds in the near‐term in addition to weak growth in Indonesia and now build in revenue/EBITDA/PAT growth of 11%/16%/13% over FY22‐24E with revised TP of Rs 946 and maintain our BUY rating based on 42x FY24E earnings, in‐line with LPA. In addition to potential benefits from the new leadership,  re‐rating should be seen once volume growth starts picking up in India in addition to a sustainable recovery in the Indonesia business.

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