Godrej Consumer Products Ltd. (NS:GOCP): GCPL’s Q4 performance was a mixed bag, with in-line revenue but a miss on EBITDA margin. Consolidated revenue grew 7% YoY - domestic revenue was up by 9% (7% three-year revenue CAGR) and international was up 4%. Domestic volume declined 3% YoY, three-year CAGR at 2% vs. Marico's (NS:MRCO) 7%, Dabur's (NS:DABU) 3%, Hindustan Unilever's (NS:HLL) 3%, and Emami's (NS:EMAM) 3%. However, the key highlight of the result is the weak international performance. International EBIT declined ~70% YoY due to the sharp fall in Indonesia and Africa EBIT margins. Indonesia remained under pressure and revenue contracted by 15%, leading to a sharp 1,400bps fall in EBITDA margin. Africa clocked healthy 15% growth, while EBITDA margin contracted by ~1,000bps YoY due to delayed price hikes and inventory pilferage in South Africa. The new CEO is implementing several initiatives to recover margin and increase penetration for domestic categories. However, considering the uncertainty around macro and RM inflation, we do not expect a quick recovery in the near term. We cut our FY23/24 EPS by 5/4%. We value the stock at 35x (already in the lower strata of our coverage universe) on Mar-24 EPS to derive a TP of INR 825. The recent correction in the stock price largely factors in the near-term challenges. We maintain ADD.
JK Lakshmi Cement (NS:JKLC): We maintain our BUY rating on JK Lakshmi Cement (JKLC) with a revised TP of INR 735/share (8x Mar-24E consolidated EBITDA). We expect its current low gearing and healthy cash flow to support its planned Udaipur expansion, without stressing its balance sheet and keeping the RoE buoyant. In Q4FY22, consolidated revenue rose 12% YoY due to better pricing and volume. EBITDA/APAT also rose 4/11% YoY respectively on modest margin compression and lower tax outgo.
Somany Ceramics Ltd (NS:SOCE): We maintain BUY on Somany Ceramics with a revised target price of INR 950/share (13x Mar-24E consolidated EBITDA). We continue to like SOMC for its strong retail distribution, improving product mix, and tightening working capital (WC). With the recent capacity expansion of ~20% in Q1FY23, we expect SOMC to continue industry-leading volume growth. While Q4FY22 consolidated revenue rose 9% YoY, EBIDTA/APAT declined by 43%/ 65% YoY on op-lev loss and elevated gas prices. The balance sheet continues to firm up, as Somany’s cash conversion cycle fell to 50 days, the lowest in the past seven years
Godrej Consumers
Weak international margin; near term daunting
GCPL’s Q4 performance was a mixed bag, with in-line revenue but a miss on EBITDA margin. Consolidated revenue grew 7% YoY - domestic revenue was up by 9% (7% three-year revenue CAGR) and international was up 4%. Domestic volume declined 3% YoY, three-year CAGR at 2% vs. Marico’s 7%, Dabur's 3%, HUL’s 3%, and Emami’s 3%. However, the key highlight of the result is the weak international performance. International EBIT declined ~70% YoY due to the sharp fall in Indonesia and Africa EBIT margins. Indonesia remained under pressure and revenue contracted by 15%, leading to a sharp 1,400bps fall in EBITDA margin. Africa clocked healthy 15% growth, while EBITDA margin contracted by ~1,000bps YoY due to delayed price hikes and inventory pilferage in South Africa. The new CEO is implementing several initiatives to recover margin and increase penetration for domestic categories. However, considering the uncertainty around macro and RM inflation, we do not expect a quick recovery in the near term. We cut our FY23/24 EPS by 5/4%. We value the stock at 35x (already in the lower strata of our coverage universe) on Mar- 24 EPS to derive a TP of INR 825. The recent correction in the stock price largely factors in the near-term challenges. We maintain ADD.
▪ In-line revenue, weak domestic volume: Consolidated revenue was up 7% YoY (27% in Q4FY21, 8% in Q3FY22, 7% HSIE), with domestic growing 9% YoY (35% in Q4FY21, 8% in Q3FY22; 9% HSIE) and international growing 4% YoY (19% in Q4FY21, 9% in Q3FY22; 4% HSIE). Domestic volume declined 3% YoY. Indonesia, GUAM, and LATAM & SAARC revenues grew 15/+15/+19% YoY (5/30/30% in Q3FY21); cc growth was at -16/14/26% YoY. Personal Care revenue grew 18% YoY; Home Care declined 7% YoY. Personal Wash saw healthy price-led growth in India. Hair Colour gradually recovered. HI delivered a weak performance due to muted season and high base.
▪ Disappointing international margin: GM contracted by 628bps YoY to 49.5%. Employee costs were down by 11% YoY (+38% in Q4FY21), A&P was down 3% YoY (+51% in Q4FY21), and other expenses were up 7% (+8% in Q4FY21). EBITDA margin fell 382bps YoY (-108bps Q4FY21, -211bps Q3FY22) to 17.2%, below our estimate of 20%. EBITDA declined by 13% YoY vs. HSIE growth of 3%. EBITDA margin for Indonesia/GUAM/Latin America & SAARC came in at 21/1/11% vs. 23/11/4% in Q4FY21.
▪ Con call takeaways: (1) GCPL’s launch of Hair Crème at a disruptive price point was in line with one of its category-growth strategies of increasing accessibility. (2) Penetration of Hair Colour is
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