Godrej Consumer Products Ltd. (GCPL)

Summary

Q4FY23 and FY23 Result Analysis

Q4FY23 Performance Highlight

• Consolidated sales grew by 10% YoY to Rs 32 bn.
• Domestic business grew by 11.5% YoY, led by volume growth of ~11%. Consolidated volumes grew by 6% YoY. Home care segment grew by 14% YoY, Personal care was up 17% YoY. International business grew by 5.4% YoY, with GUAM growing by 6.5% YoY. Indonesia returned to positive territory, growing by 8.2% YoY.
• Gross margin expanded by ~340 bps YoY to 52.9%.
• Employee cost grew by 10% YoY, while as % of sales, it stood at 9.4%. Advertising spend increased by 21% YoY and as % of sales it stood at 7% (versus 6.3% in 4QFY22). Other expenses increased by 4% YoY.
• Despite advertising spends inching up, EBITDA grew by 32% YoY to Rs 6.6 bn. EBITDA margin came to 20.8%, expanding by ~350 bps YoY. Adjusted PAT grew by 24% YoY to Rs 4.7 bn.

Consolidated Q4 - Performance Highlights

Subsegment Performance

4Q FY 2023 consolidated sales grew by 10% in INR led by volume growth of 6%; constant currency growth of 14% year-on-year

• India business sales grew by 12% year-on-year led by volume growth of 11%
• Indonesia sales grew by 8% in INR and 5% in constant currency terms, year-on-year; ex-Hygiene growth of 14% and 11% in INR and constant currency respectively
• Africa, USA and Middle East sales grew by 6% in INR and 8% in constant currency terms, yearon-year
• Latin America & SAARC sales declined by 3% in INR and grew by 64% in constant currency terms, year-on-year.

India Business Performance

• 4Q FY 2023 India sales grew by 12% to INR 1,789 crore; volume grew by 11%
• 4Q FY 2023 EBITDA grew by 26% to INR 475 crore
• 4Q FY 2023 Net Profit without exceptions and one-offs grew by 17% to INR 406 crore

Segmental Performance

Home care segment grew by 14% YoY, with a 2-year CAGR of 6%. Growth was driven by premium formats of electrics and aerosols, with both non-mosquito portfolio and mosquito portfolio (80% salience) growing in double digits.

Personal Wash & Hygiene segment continued its momentum with ~17% YoY sales growth (2-year CAGR of 19%). The company continued to gain market share and deepen penetration through micro-marketing initiatives and consistent marketing investments.

Indonesia Business Performance

Core business performance improves in Indonesia with sales growth of 5% in constant currency terms. Sales, excluding Hygiene (Saniter), saw a growth of 11% in constant currency terms. EBITDA margins at 21.5% were flat year-on-year. We also completed the transition to a distributor model.

Africa, USA and Middle East Business Update

Africa, USA and Middle East cluster delivered high single-digit sales growth of 8% in constant currency terms. Performance was impacted by election and demonetisation in Nigeria; however, business saw recovery in March 2023. We continue to deliver double-digit sales growth in the FMCG category. EBITDA margins at 10% expanded by 860 bps year-on-year due to a lower base.

Concall Highlights

• India branded business grew 16% with volume growth of 13%. Home care grew 14% with 12% volume growth while personal care grew 17% with 15% volume growth. HI grew in teens with early double digit volume growth.
• GAUM was impacted due to demonetization and election in Nigeria. Notably, March performance witnessed improvement. In FY23, direct distribution has increased by 1.8x and 2x in Nigeria and Kenya.
• In FY23, sampling was done to 3mn households and would increase to 6mn in FY24
• In Indonesia, simplification in sales and distribution is done and should help in business recovery.
• India should witness price decline while in international business could witness price increase. On a consolidated basis growth would be led by volume and very less of pricing.

Historical Financial Performance

Profit and Loss

Balance Sheet

Cash Flow

Margin and Profitability

Risk

• Economic slowdown
• Global economic volatility
• Higher commodity prices
• Forex volatility

Valuation and Outlook

This quarter, GCPL's operational performance exceeded our projections. GCPL has pleasantly pleased on the margins front. It is highly commended that the domestic business saw volume growth of 11%. The volume growth is anticipated to continue steady at mid-single digits on an overall basis. Future margin improvement will be aided by raw material price stability, cost-cutting initiatives, and the proper size of overseas business. Due to this quarter's strong performance and the company's expanding expectations for its foreign business, we continue to HOLD. The stock is presently priced at 42x EPS for the FY25E.