Downgrade GCPL despite good growth; upside limited: Emkay

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Published: August 1, 2015 12:11:08 AM

Q1FY16 consolidated results were broadly in line with our estimates.

Q1FY16 consolidated results were broadly in line with our estimates. Key highlights: 1) Revenues at Rs 2,090 crore, up 11.1% y-o-y with India branded business growth at 13% y-o-y and international constant currency growth at 13% yoy. 2) Ebitda at Rs 320 crore, up 30.4% y-o-y, gross margin expansion was healthy at 380bps y-o-y to 56.4%; however higher employee  spends (+35% y-o-y) stemmed ebitda margin expansion to 15%, up 220bps y-o-y and 3) APAT at Rs 210 crore, up 33.8% y-o-y due to lower tax rate.

Domestic volume growth was strong at 13% across categories. Soaps grew by 13% y-o-y, household insecticides (HI) grew 15% y-o-y while hair colours grew 12%. Rural grew faster than urban, but pace of growth in rural has tapered, while urban is gradually picking up.

Gross margins expanded 380bps y-o-y to 56.4% led by lower inputs, favourable mix in domestic business and benefit accruing from project Pie (~+150-200 bps). We expect margin trajectory to continue led by lower inputs, mix and cost efforts. While, growth prospects are strong with likely uptick in urban demand and improving international operations, but given recent stock outperformance (25% in last 3  months), we downgrade GCPL to ‘accumulate’ with revised price target of Rs 1,360 (30x FY17e).

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