We maintain ‘neutral’ on Godrej Consumer (GCPL) with a target price of R870. Recovery in domestic volume growth is a key monitorable. We are revising our estimates downwards by 2-3% to bake in lower topline growth and Q2 miss. The stock trades at rich valuations of 36.9x FY15 and 30.7x FY16e EPS respectively.
Consolidated sales in Q2FY15 grew below expectations at 4.6% with 6.5% growth for the Indian subcontinent and 2.5% growth in international business (12% growth in constant currency terms).
Consolidated constant currency sales grew 9%, primarily impacted by slowdown in household insecticides due to deficient monsoon in central and north regions.
Gross margins contracted 170 bps y-o-y to 52% due to raw material inflation and mix deterioration. Ebitda margins expanded 100 bps to 16.1% on account of savings in other expenses, ad spends and staff cost. Consequently, ebitda grew 11.7% y-o-y to R330 crore. Higher other income and lower depreciation cost aided PBT growth of 19% y-o-y to R310 crore. PAT increased 10.4% y-o-y to R220 crore.
India business performance was subdued due to slowdown across categories and posted sales of R1,030 crore, up 6.5% y-o-y. Home insecticide saw 2% sales growth while hair care reported 9% growth. Soaps revenues were up 13% while the category continued to de-grow this quarter.
International sales grew 2.5% to R960 crore (12% organic constant currency growth), primarily led by 10% sales growth in Indonesia.