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Topline misses; Oral Care EBIT surprises positively

Gillette India Ltd. (GILL’s) Dec’24 quarter saw a miss on topline as the grooming business failed to maintain the strong topline delivered in the previous quarter. Grooming business growth was still decent at 11% YoY and looks even more commendable as it comes at a time when FMCG peers saw urban consumption pressure. We believe this growth is driven by multiple factors (1) resilient rural growth aiding volumes in Guard portfolio, (2) support from upgraded Guard product at a higher price point of Rs.12 supported by superior compelling advertisement for Hindi heartland, (3) continued strong growth in the Venus portfolio, (4) reach & coverage increase and (5) premiumization supported by strong traction for Gillette Labs. Overall growth for Dec’24 was dragged by 8.3% decline in Oral Care business largely due to competitive intensity in the entry level portfolio, we believe. Quarterly margin ‘up & down’ continues but structurally it is on an upward trajectory through productivity and innovations. We continue to maintain our ADD rating with a revised target price (TP) of Rs9,725 (Rs9,500 earlier), targeting ~54x March’27E EPS. Key monitorable: 1) Any delayed impact of urban slowdown; 2) Sustenance of strong improvement in Oral Care profitability; 3) Outcome for P&G India businesses from evaluation of "Integrated growth strategy"; 4) Exports & Oral Care recovery.

Stock performance

December’24 Quarter Result Highlights

* Headline performance: Revenue grew by 7.2% YoY to Rs6.9bn (vs est. Rs7.4bn). EBITDA was up 17.3% YoY to Rs1.8bn (vs est. Rs1.8bn). APAT was up 21.2% YoY to Rs1.26n (vs est. Rs1.24bn).

* Segmental performance: (1) Grooming business (83.2% of revenues in Dec’24 Qtr vs 80.4% in base) revenue up by 11% YoY to Rs5.7bn (vs est. Rs6bn). 5-yr revenue CAGR stood at 10.6%, respectively. Grooming segment EBIT margin down by ~350bps YoY to 21.6%. (2) Oral care revenues (16.8% of revenues in Dec’24 Qtr vs 19.6% in base) down 8.3% to Rs1.15bn (vs est. Rs1.35bn) with EBIT margin up sharply YoY to 33.7%.

* Margin: Overall gross margin came at 58.7% (vs. est. 58.5%), up 60bps YoY and up 2,300bps QoQ. Savings in Other overheads (down 220bps YoY) and Employee cost (down 170bps YoY) was partially offset by higher A&SP spends (up 220bps YoY; absolute A&SP spends up 27.3% YoY). Thus, EBITDA margin was up 230bps YoY to 26.7% (vs est. 25%).

* YTD’25: Revenue, EBITDA & APAT up 12.3%, 27.6% & 31.7%, resp. Gross margin up 120bps YoY to 57.5% while EBITDA margin up 300bps YoY to 25.4%.

View & Valuation

Change in model have led to 0.4%/2.2%/3.9% upward revision in our FY25E/FY26E/FY27E EPS. Over FY24-27E, we now estimate 8.8% revenue CAGR. Our current growth estimates do not consider any major reversal in trend towards shaving from ‘sporting beard’ or ‘trimming’. Margin delivery has been ahead in recent times led by gross margins. Over FY24-27E, we now build ~220bps improvement in EBITDA margin (gross margin estimated to improve by ~130bps) largely led by pricing+premiumization and productivity interventions leading to EBITDA growth of 12% over FY24-27E. Gillette’s market share are at highest levels and continues to strengthen. With strong traction in Gillette Labs, upgraded Guard product and continued innovations, it’s market share should further improve or atleast be maintained. GILL boasts strong return ratios and has also shown healthy growth in dividends over the years. We continue to maintain our ADD rating with a revised TP of Rs9,725 (Rs9,500 earlier), targeting ~54x March’27E EPS. Key monitorable: 1) Any delayed impact of urban slowdown; 2) Sustenance of strong improvement in Oral Care profitability; 3) Outcome for P&G India businesses from evaluation of "Integrated growth strategy"; 4) Exports & Oral Care recovery.

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