Result Update 2QFY2014 | FMCG

November 22, 2013

Godrej Consumer Products

Performance Highlights
Quarterly result (Consolidated)
Y/E March (` cr) Revenue EBITDA OPM (%) Adjusted PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period

`872 -

2QFY14 1,957 295 15.1 195

2QFY13 1,595 244 15.3 159

% yoy 22.7 21.1 (20)bp 22.3

1QFY14 1,720 221 12.8 130

% qoq 13.8 33.8 226bp 49.4

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 29,329 949 0.3 977/661 54,070 1 20,229 5,999 GOCP.BO GCPL@IN

Godrej Consumer Products Ltd (GCPL), in its 2QFY2014 results, reported a healthy top-line growth of 22.7% yoy to `1,957cr. The OPM fell by 20bp yoy to 15.1%. Bottom-line rose by 22.3% yoy. Key highlights of the quarter: GCPLs India business grew by 14% yoy to `1,024cr. The Soaps business grew by a muted 3% yoy aided by a volume growth of 4%. The Household Insecticides business posted an impressive growth of 25% yoy. The Hair Colours business too posted a strong growth of 24%. The International business posted a growth of 33% yoy to `941cr. The Indonesian business posted a growth of 14% yoy while the Africa business grew by 53% yoy. The Latin America and Europe businesses posted a growth of 19% and 102% respectively. The companys gross margin rose by 184bp yoy, aided by lower raw material prices on a yoy basis. However, the OPM was down 20bp on a yoy basis, largely due to higher advertisement expenses, both in the domestic and international businesses. Advertising expenses as a percentage of sales rose by 154bp on a yoy basis. The OPM was also impacted due to 58% hike in workers wages and higher fuel prices in Indonesia. However, calibrated price increases taken by the company to pass on these costs have pushed up the margins on a sequential basis. Outlook and valuation: Going ahead we expect GCPLs consolidated top-line and bottom-line to grow at a CAGR of 19.3% and 19.6% over FY2013-15E. At the current market price, the stock is trading at 28.7x FY2015E consolidated earnings. We maintain our Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 63.3 1.2 28.7 6.8

Abs. (%) Sensex GCPL

3m 13.0 4.7

1yr 9.6 28.2

3yr 3.3 99.7

Key Financials (consolidated)

Y/E March (` cr) Net Sales % chg Net Profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2012 4,851 33.2 550 14.2 17.8 16.2 53.3 10.4 33.2 18.8 6.3 35.4 FY2013 6,391 31.7 700 27.3 15.6 20.6 41.9 8.9 27.6 17.5 4.8 30.8 FY2014E 7,801 22.1 825 17.9 15.1 24.2 35.5 7.4 24.1 17.9 3.9 25.9 FY2015E 9,094 16.6 1,022 23.9 15.8 30.0 28.7 6.2 24.6 20.5 3.3 20.9

V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com

Source: Company, Angel Research; Note: CMP as of November 21, 2013

Please refer to important disclosures at the end of this report

GCPL | 2QFY2014 Result Update

Exhibit 1: Quarterly performance (Consolidated)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income Forex loss/ (gain) PBT (excl. Ext Items) Ext Income/(Expense) PBT (incl. Ext Items) (% of Sales) Provision for Taxation (% of PBT) PAT (reported) bef MI PATM Minority Interest Reported PAT Equity shares (cr) FDEPS (`)
Source: Company, Angel Research

2QFY14 1,957 906 46.3 202 10.3 221 11.3 333 17.0 1,662 295 15.1 26 24 17 6 256 256 13.1 47 18.3 209 10.7 14 195 34 5.7

2QFY13 1,595 768 48.1 133 8.4 155 9.7 295 18.5 1,351 244 15.3 20 21 19 8 215 215 13.5 48 22.1 168 10.5 8 159 34 4.7

% yoy 22.7 18.0 51.7 42.1 13.0 23.0 21.1 28.5 18.3 (11.5) (16.5) 19.0 19.0

1QFY14 1,720 801 46.5 179 10.4 239 13.9 281 16.3 1,500 221 12.8 24 22 18 15 177 2 179 10.4 34 19

% qoq 13.8 13.1 12.8 (7.7) 18.9 10.8 33.8 6.9 10.3 (3.4) (58.9) 44.8 43.0

1HFY2014 3,680 1,706 46.4 381 10.4 460 12.5 616 16.7 3,163 516 14.0 50 47 35 22 433 (2) 435 11.8 81 19

1HFY2013 2,988 1,464 49.0 262 8.8 314 10.5 505 16.9 2,545 443 14.8 36 41 38 25 378 378 12.7 59 16 320 10.7 30 290 32 9.0

% chg 23.1 16.6 45.4 46.4 22.0 24.3 16.5

14.8 (7.5) (13.8) 14.4 15.0 37.5 10.8

24.8

145 8.4 13

43.9

354 9.6 27

22.3 22.3

133 34 3.9

46.9 46.9

327 34 9.6

12.9 7.4

Exhibit 2: Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) Adjusted PAT
Source: Company, Angel Research

Actual 1,957 295 15.1 195

Angel est. 1,950 279 14.3 182

% chg 0.4 5.9 79 6.9

November 22, 2013

GCPL | 2QFY2014 Result Update

Top-line growth steady at 22.7%

GCPL, in its 2QFY2014 results, reported a healthy top-line growth of 22.7% yoy to `1,957cr. The domestic and international businesses posted a top-line growth of 14% yoy and 33% yoy respectively.

Exhibit 3: Robust top-line performance

2,500 35.9 2,000 1,500 1,000 1,186 1,344 1,323 1,389 1,595 1,691 1,716 1,720 1,957 500 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 24.5 30.9 25.8 39.2 34.5 29.7 23.9 22.7 45.0 40.0 35.0 30.0 20.0 15.0 10.0 5.0 ( %) 25.0

(` cr)

Top-line (LHS) Source: Company, Angel Research

yoy growth (RHS)

Growth in domestic business ahead of category growth

GCPLs domestic business grew by 14%, with all the three business segments outperforming their respective category growth rates. Household Insecticides, posted a growth of 25% with the key brands Hit and Good Knight continuing to gain market share and strengthening their market leadership position. During the quarter, the company launched Goodknight Fast Card, a non electric format, easy to use mosquito repellant. The Soaps business posted a muted 3% yoy growth impacted by slower ramp up in one of the key consumer offers and political turmoil in Andhra Pradesh. Volume growth for the soaps business stood at 4%. Hair Colours posted a value growth of 24%, much ahead of category growth. Growth was led by Godrej Expert Rich Hair Crme and Godrej Expert Rich Hair Colour. During the quarter, the company launched Godrej Expert Rich Hair Crme in South India.

International business posts strong top-line growth

The companys International business posted a top-line growth of 33% yoy to `941cr. Constant currency growth in Indonesia, Africa, Latin America and Europe stood at 13%, 53%, 23% and 88% respectively. Growth in Indonesia and Latin America was led by continuous marketing investments, and new product launches. While the African business posted a steady performance in a overall manner, business momentum in South Africa was impacted due to low consumer confidence in the country. Poor macro environment in the country resulted in sales de-growth in key retail chains. The country witnessed auto workers strike and the consumer spending is at 10-year low.

November 22, 2013

GCPL | 2QFY2014 Result Update

Exhibit 4: International business

Region Net Sales (` cr) LATAM Indonesia Afica Europe OPM LATAM Indonesia Africa Europe
Source: Company, Angel Research

2QFY2014 154 361 250 138

2QFY2013 129 317 163 68

(yoy %) 19 14 53 102 (yoy bp)

7.0 17.0 14.0 10.0

3.1 18.7 15.6 9.4

390 (170) (160) 60

Bottom-line up 22.3% yoy

The companys gross margin rose by 184bp yoy aided by lower raw material prices on a yoy basis. However, the OPM was down 20bp on yoy basis largely due to higher advertisement expenses both in the domestic and international business. Advertising expenses as a percentage of sales rose by 154bp on a yoy basis. However, advertising expenses as a percentage of sales fell by 263bp on a sequential basis, which the Management attributed to the scaling up of new launches. The OPM was also impacted due to a 58% hike in workers wages and higher fuel prices in Indonesia. Margins of the Indonesian business were also affected due to distribution arrangement for divested foods business in Indonesia at break-even margins. However, calibrated price increases taken by the company to pass on cost increases have pushed up the margins on a sequential basis in Indonesia. The companys bottom-line rose by 22.3% yoy aided by 21.1% yoy increase in operating profit and lower tax rate.

Exhibit 5: Recurring PAT performance

260 210 160 110 60 10 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 39.1 30.3 18.3 24.8 22.4 3.1 1.7 10.8 144 167 168 130 159 172 205 130 195 22.3 45.0 40.0 35.0 30.0 20.0 15.0 10.0 5.0 ( %) 25.0

(` cr)

PAT (LHS) Source: Company, Angel Research

yoy growth (RHS)

November 22, 2013

GCPL | 2QFY2014 Result Update

Exhibit 6: Gross margin and OPM

60.0 50.0 40.0 51.6 53.5 53.6 52.2 51.9 55.5 55.1 53.5 53.7

Exhibit 7: Ad spends/sales rise y-o-y

260 11.0 210 160 110 111 112 110 153 60 10 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 9.4 9.7 8.3 8.3 10.7 9.5 13.9 11.3 14.0 12.0 10.0 (%) 8.0 6.0 4.0 155 181 163 239 221 2.0 -

30.0 20.0 10.0 2Q12 17.4

19.7

18.8

14.3

15.3

16.6

16.0

12.8

15.1

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

OPM

Gross Margin

2Q14

(` cr)

(%)

Absolute ASP (LHS)

ASP as % of sales (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Investment rationale
Acquisitions to drive future growth: GCPLs recent acquisitions have been in
line with its 3X3 strategy and are expected to enable the company to spread its footprint and grow inorganically. GCPLs Indonesian subsidiary Megasari (acquired in April 2010) has been consistently posting a healthy financial performance. The acquisition of Darling Group, the market leader in hair extension products in the African continent; and Chile based Cosmetica Nacional will continue to drive strong growth for the company in Africa and LatAm. The Management has constantly reiterated that all recent international acquisitions have been EPS-accretive.

Synergistic benefits due to integration of GHPL business: We believe there are

significant synergistic benefits in terms of distribution and supply-chain networks through the integration of Godrej Household Products Ltd (GHPL), which are likely to get reflected in GCPLs performance going ahead. Moreover, GHPLs strong presence in Southern India complements GCPLs strong presence in Northern India extremely well, giving GCPL a balanced presence.

Outlook and valuation

Going ahead we expect GCPLs consolidated top-line and bottom-line to grow at a CAGR of 19.3% and 19.6% over FY2013-15E. At the current market price, the stock is trading at 28.7x FY2015E consolidated earnings. We maintain our Neutral rating on the stock.

November 22, 2013

GCPL | 2QFY2014 Result Update

Exhibit 8: Peer valuation

Company Asian Paints Britannia Colgate Dabur India Godrej Con GSK Con* HUL ITC Marico Nestle* TGBL Reco. Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
48,967 10,515 17,035 28,003 29,322 18,687 124,463 247,050 13,453 52,950 8,893
#

CMP (`)
511 880 1,253 161 862 4,443 576 313 209 5,492 144

TP (`)
-

Upside (%)
-

P/E (x) FY14E

38.7 33.6 32.7 30.2 35.5 36.7 34.6 28.4 28.5 44.8 19.9

EV/Sales (x) FY14E

3.8 1.6 4.6 3.9 3.9 4.7 4.2 6.5 2.7 5.6 1.1

RoE (%) FY14E

35.1 42.2 96.2 39.1 24.1 34.0 111.7 36.1 21.5 56.1 8.9

CAGR # Sales
15.6 15.9 15.7 15.4 19.3 17.6 12.6 14.3 10.3 14.4 11.0

FY15E
32.6 28.1 27.9 25.8 28.7 30.7 31.5 24.4 23.3 36.8 17.4

FY15E
3.2 1.3 3.9 3.4 3.3 3.9 3.7 5.5 2.3 4.7 0.9

FY15E
32.6 38.4 92.5 36.5 24.6 33.3 88.2 34.9 21.7 50.3 9.5

PAT
16.2 27.7 10.7 19.1 19.6 19.7 11.4 16.8 26.1 14.3 12.7

Source: Company, Angel Research; Note: Denotes CAGR for FY2013-15E;*December year ending

Exhibit 9: One-year forward P/E chart

50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 May-09 May-10 May-11 May-12 May-13 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13

Source: Company, Angel Research, Note: Blue line indicates 5-year average

November 22, 2013

GCPL | 2QFY2014 Result Update

Company background
GCPL is a leading FMCG company in the household and personal care products category, with brands such as Good Knight, Hit, Cinthol, Godrej No.1 and Expert. The company has built a foothold in Africa, Latin America, Indonesia and UK through several acquisitions. Currently, ~40% of the company's revenue comes from its international business.

Profit & loss statement (consolidated)

Y/E March (` cr) Total operating income % chg Total expenditure Cost of Materials Advertising Exp Personnel Others EBITDA % chg (% of Net Sales) Depreciation & amort EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of asso. Recurring PBT % chg Prior Period & Extra Exp/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earn. of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY10 2,044 46.3 1,634 946 133 152 403 407 96.6 20.0 24 384 104.2 18.8 11 45 10.7 420 100.7 420 80 19.1 340 340 340 96.7 16.6 11.0 10.0 96.7 FY11 3,646 78.4 3,002 1,749 352 285 617 641 57.3 17.6 50 591 54.0 16.2 52 70 11.4 612 45.7 (33) 645 130 21.3 515 515 482 41.8 13.2 14.9 14.2 41.8 FY12 4,866 33.5 3,987 2,316 450 392 830 864 34.8 17.8 64 799 35.3 16.5 66 52 6.5 801 30.9 (180) 980 226 28.2 754 24.5 730 550 14.2 11.3 16.2 16.2 14.2 FY13 6,407 31.7 5,392 2,951 652 591 1,199 999 15.6 15.6 77 922 15.3 14.4 77 68 7.3 928 16.0 (96) 1,025 179 19.3 845 49.3 796 700 27.3 11.0 20.6 20.6 27.3 FY14E 7,817 22.0 6,627 3,627 842 741 1,416 1,174 17.6 15.1 99 1,075 16.7 13.8 66 117 10.2 1,143 23.1 1,143 269 23.5 874 49.3 825 825 17.9 10.6 24.2 24.2 17.9 FY15E 9,110 16.5 7,661 4,274 909 846 1,632 1,432 22.0 15.8 115 1,317 22.5 14.5 50 117 8.3 1,401 22.5 1,401 329 23.5 1,071 49.3 1,022 1,022 23.9 11.2 30.0 30.0 23.9

November 22, 2013

GCPL | 2QFY2014 Result Update

Balance Sheet (consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Long term Provisions Other long term liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 910 305 225 380 553 357 998 359 153 206 1 368 67 660 377 282 8 2,795 167 1,237 227 187 823 736 501 3,754 728 494 234 38 3,458 246 2,041 640 145 1,256 1,208 833 4,809 940 571 369 47 4,221 246 2,798 869 153 1,776 1,897 901 5,785 1,200 670 530 60 4,371 246 3,177 990 148 2,038 2,124 1,052 6,260 1,399 785 614 70 4,521 246 3,512 988 148 2,376 2,331 1,181 6,632 998 31 924 955 37 7 32 1,693 1,725 2,001 1 18 9 3,754 34 2,781 2,815 88.00 1,877 (1) 22 7 4,809 34 3,279 3,313 209.51 2,247 (14) 22 7 5,785 34 3,905 3,939 258.84 2,047 (14) 22 7 6,260 34 4,728 4,762 308.17 1,547 (14) 22 7 6,632 FY10 FY11 FY12 FY13 FY14E FY15E

November 22, 2013

GCPL | 2QFY2014 Result Update

Cash flow Statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY10 420 24 (13) (16) 80 (24) 310 34 (67) (33) 5 (241) 104 (16) (324) (47) 352 305 FY11 612 50 (389) 25 130 173 342 (2,736) 67 (2,669) 498 1,973 197 25 2,249 (78) 305 227 FY12 801 64 (11) 18 226 197 842 (760) (760) 657 (126) 182 18 331 413 227 640 FY13 928 77 167 23 179 50 1,066 (985) (985) 370 199 23 148 229 640 869 FY14E 1,143 99 (33) (38) 269 4 906 (423) (423) (200) 199 (38) (361) 122 869 990 FY15E 1,401 115 (141) (54) 329 9 1,001 (359) (359) (500) 199 (54) (645) (3) 990 988

November 22, 2013

GCPL | 2QFY2014 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) 5.7 47 21 95 9 5.5 44 38 72 42 6.7 59 36 87 30 6.5 59 37 105 15 6.5 59 37 96 13 6.5 59 37 90 17 41.5 166.7 44.5 25.0 121.5 38.4 18.8 113.9 33.2 17.5 135.3 27.6 17.9 138.8 24.1 20.5 133.2 24.6 11.0 10.0 11.8 4.1 31.0 14.9 14.2 16.4 5.0 53.3 16.2 16.2 18.8 4.6 82.7 20.6 20.6 24.3 5.0 97.4 24.2 24.2 28.6 5.0 115.8 30.0 30.0 34.9 5.0 139.9 86.3 73.1 27.8 0.5 14.2 71.3 29.1 60.9 52.5 16.2 0.6 8.5 48.5 8.3 53.3 45.9 10.4 0.5 6.3 35.4 6.4 41.9 35.5 8.9 0.6 4.8 30.8 5.3 35.5 30.1 7.4 0.6 3.9 25.9 4.9 28.7 24.7 6.2 0.6 3.3 20.9 4.5 FY10 FY11 FY12 FY13E FY14E FY15E

November 22, 2013

10

GCPL | 2QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GCPL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 22, 2013

11