Result Update 1QFY2014 | FMCG

August 19, 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 -

1QFY14 1,720 221 12.8 130

1QFY13 1,389 199 14.3 130

% yoy 23.9 11.0 (149) 0.0

4QFY13 1,716 275 16.0 205

% qoq 0.3 (19.8) (321) (36.4)

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 29,687 1,378 0.4 977/625 46,870 1 18,598 5,508 GOCP.BO GCPL@IN

Godrej Consumer Products Ltd (GCPL), in its 1QFY2014 results, reported a healthy top-line growth of 23.9% yoy to `1,720cr. However, the OPM disappointed, declining by 149bp yoy, impacted by higher advertisement and promotion (A&P) expenditure and lower margins in international operations. Key highlights of the quarter: GCPLs domestic business grew by 19%. Home care, Soaps and Hair Care segments posted a revenue growth of 24%, 13% and 32% yoy respectively. Despite a 410bp yoy increase in gross margins (aided by fall in palm oil prices), the domestic OPM declined by 55bp yoy due to a 74% yoy increase in advertising expenditure. The companys international business posted a top-line growth of 30% yoy to `830cr. Indonesia, African, Latin American and European businesses posted a top-line growth of 17%, 49%, 21% and 59% respectively. Sales growth was impacted by depreciation of currencies in South Africa, Argentina and Indonesia. The OPM of the international business also fell by 240bp yoy. The OPM of the Indonesian business fell 260bp yoy to 15% due to contract manufacturing done at break-even margins (for one year) for divested business and 58% yoy increase in wages due to the government regulation on minimum wages and 33% increase in fuel costs. The OPM of the African business declined by 570bp yoy mainly due to depreciation of South African Rand. Outlook and valuation: Going ahead we expect GCPLs consolidated top-line and bottom-line to grow at a CAGR of 18.8% and 18.9% over FY2013-15E. At the current market price, the stock is trading at 29.4x 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 28.3 7.2

Abs. (%) Sensex GCPL

3m (8.1) (0.9)

1yr 5.3 37.7

3yr 3.0 139.7

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 54.0 10.5 33.2 18.8 6.4 35.8 FY2013 6,391 31.7 700 27.3 15.6 20.6 42.4 9.0 27.6 17.5 4.9 31.1 FY2014E 7,801 22.1 855 22.2 16.2 25.1 34.7 7.5 24.8 19.3 3.9 24.4 FY2015E 9,017 15.6 1,010 18.1 15.9 29.7 29.4 6.2 24.2 19.9 3.4 21.1

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

Source: Company, Angel Research; Note: CMP as of August 16, 2013

Please refer to important disclosures at the end of this report

GCPL | 1QFY2014 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

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 18.9 145 8.4 13 133 34 3.9

1QFY13 1,389 664 47.8 129 9.3 153 11.0 244 17.6 1,190 199 14.3 16 20 18 18 163 163 11.7 11 6.9 152 10.9 21 130 34 3.8

% yoy 23.9 20.6 39.0 56.2 15.1 26.0 11.0 46.4 11.3 (2.0) (12.6) 8.5 9.9

4QFY13 1,716 770 44.9 171 10.0 163 9.5 337 19.6 1,440 275 16.0 22 16 28 5 260 129 389 22.7 53 14

% qoq 0.3 4.0 4.6 47.1 (16.7) 4.1 (19.8) 8.4 38.1 (36.7) 218.4 (32.0) (54.0)

FY2013 6,391 2,951 46.2 591 9.2 652 10.2 1,199 18.8 5,392 999 15.6 77 77 84 33 896 (129) 1,025 16.0 179 17

FY2012 4,851 2,316 47.7 401 8.3 450 9.3 823 17.0 3,990 861 17.7 66 64 67 21 777 (200) 977 20.1 226 23 751 15.5 25 726 32 22.4

% chg 31.7 27.4 47.1 44.9 45.6 35.1 16.0

19.5 25.6 58.0 15.3 4.9 (20.7) 12.6

(4.2)

336 19.6 2

(56.7)

845 13.2 49

1.7 1.7

334 34 9.8

(60.3) (60.3)

796 34 23.4

9.6 4.2

Exhibit 2: Actual vs Angel estimates

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

Actual 1,720 221 12.8 130

Angel est. 1,779 258 14.5 167

% chg (3.3) (14.4) (167) (21.9)

August 19, 2013

GCPL | 1QFY2014 Result Update

Top-line growth steady at 23.9%

GCPL, in its 1QFY2014 results, reported a healthy top-line growth of 23.9% yoy to `1,720cr. The domestic and international businesses posted a top-line growth of 19% yoy and 30% yoy respectively. Exhibit 3: Robust top-line performance
2,000 1,800 1,600 1,400 (` cr) 1,200 1,000 800 600 1,186 1,344 1,323 1,389 1,595 1,691 1,716 998 1,720 400 200 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 24.5 39.6 35.9 30.9 39.2 34.5 25.8 29.7 23.9 45.0 40.0 35.0 30.0 20.0 15.0 10.0 5.0 ( %) 25.0

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

yoy growth (RHS)

Growth in domestic businesses ahead of category growth

GCPLs domestic business grew by 19%, with all the three business segments outperforming their respective category growth rates. The Home Care business of the company, represented by household insecticides, posted a growth of 24% with the key brands HIT and Good Knight continuing to gain market share and strengthening their market leadership position. The Soaps business posted a growth of 13%, with volume growth coming in at 7%. Pricing growth in the Soaps business was led by higher pricing in Cinthol and carry over pricing growth in Godrej No.1. The Hair Care business represented by hair colours posted a value growth of 32%, much ahead of category growth. The newly launched Godrej Expert Rich Crme hair colour continues to do well.

International business posts strong top-line growth

The companys international business posted a top-line growth of 30% yoy to `830cr. Constant currency growth in Indonesia, Africa and Latin America stood at 21%, 58% and 31% respectively. However, depreciation of currencies of these countries/regions resulted in a lower overall revenue growth in these countries at 17%, 49%, 21%, respectively. Growth in Indonesia and Latin America was led by continuous marketing investments, new product launches and distribution expansion. In case of Africa, while East Africa reported strong momentum, both on the top-line and margin front, South Africa witnessed down trading. The South African business was also impacted by a15% depreciation in the South African Rand.

August 19, 2013

GCPL | 1QFY2014 Result Update

Exhibit 4: International business

Region Net Sales LATAM Asia Afica Europe OPM LATAM Asia Africa Europe
Source: Company, Angel Research

1QFY2014 130 319 214 115 778 3.0 15.0 13.0 9.0

1QFY2013 107 273 144 72 596 (2.4) 17.6 18.7 12.4

(yoy %) 21 17 49 59 31 (yoy bp) 540 (260) (570) (340)

Bottom-line flat yoy

GCPLs consolidated gross margin rose by 128bp on a yoy basis, aided by higher prices and lower raw material costs. However, the OPM fell by 149bp yoy to 12.8%, impacted by higher advertisement and promotion (A&P) expenditure and lower margins in the Indonesian, European and African operations. Despite a 410bp yoy increase in gross margins (aided by fall in palm oil prices) the domestic OPM declined by 55bp yoy due to a 74% yoy increase in advertising expenditure. The OPM of the international business also fell by 240bp yoy. The OPM of the Indonesian business fell 260bp yoy to 15% due to contract manufacturing done at break-even margins (for one year) for divested business; 58% yoy increase in wages due to the government regulation on minimum wages; and a 33% increase in fuel costs. The OPM of the African business declined by 570bp yoy, mainly due to depreciation of the South African Rand.

Exhibit 5: Recurring PAT performance

260 94.2 100.0 90.0 210 39.1 160 (` cr) 10.8 18.3 24.8 22.4 80.0 70.0 60.0 50.0 110 30.3 3.1 60 100 144 167 168 130 159 172 205 1.7 130 40.0 30.0 20.0 10.0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 ( %)

10

PAT (LHS) Source: Company, Angel Research

yoy growth (RHS)

August 19, 2013

GCPL | 1QFY2014 Result Update

Exhibit 6: Gross margin and OPM

60.0 50.0 40.0 51.0 51.6 53.5 53.6 52.2 51.9 55.5 55.1 53.5

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

260 210 (` cr) 160 110 117 111 112 110 153 155 181 163 239 60 10 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 11.7 9.4 8.3 8.3 13.9 11.0 9.7 10.7 9.5 14.0 12.0 10.0 (%) 8.0 6.0 4.0 2.0 1Q14

(%)

30.0 20.0 10.0 1Q12 2Q12 14.3 17.4

19.7

18.8

14.3

15.3

16.6

16.0

12.8

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

OPM

Gross Margin

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 integration of Darling group is proceeding smoothly and the second phase of consolidation took place in 3QFY2013. The Management has constantly reiterated that all recent international acquisitions have been EPS-accretive.

Synergistic benefits due to integration of GHPL businesses: 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 18.8% and 18.9% over FY2013-15E. At the current market price, the stock is trading at 29.4x FY2015E consolidated earnings. We maintain our Neutral rating on the stock.

August 19, 2013

GCPL | 1QFY2014 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) 40,061 8,884 18,017 29,596 29,681 17,444 129,426 252,897 13,720 48,306 8,685
#

CMP (`) 418 743 1,325 170 872 4,148 599 320 213 5,010 140

TP (`) -

Upside (%) -

P/E (x) FY14E 30.1 34.9 32.2 31.8 34.7 33.9 35.9 28.4 29.3 40.6 18.6 FY15E 26.0 29.2 27.4 27.0 29.4 27.9 32.9 24.0 24.6 33.5 16.5

EV/Sales (x) FY14E 3.1 1.3 4.8 4.1 3.9 4.3 4.4 6.9 2.6 5.1 1.0 FY15E 2.6 1.1 4.2 3.5 3.3 3.6 3.9 5.8 2.2 4.3 0.9

RoE (%) FY14E 35.6 35.7 100.0 39.2 24.8 34.1 113.4 36.1 21.4 56.4 9.3 FY15E 32.7 34.6 91.0 36.7 24.2 33.7 87.0 34.9 21.0 50.3 9.7

CAGR # Sales 15.4 16.1 15.7 16.2 18.8 17.6 12.6 16.2 14.8 14.4 11.0 PAT 17.5 15.3 15.0 19.5 18.9 19.6 11.1 19.2 24.0 14.5 14.4

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 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13

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

August 19, 2013

GCPL | 1QFY2014 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 6,541 3,627 780 718 1,416 1,260 26.2 16.2 99 1,161 26.0 14.9 66 71 6.0 1,183 27.4 1,183 278 23.5 905 49.3 855 855 22.2 11.0 25.1 25.1 22.2 FY15E 9,033 15.6 7,587 4,220 902 830 1,636 1,429 13.4 15.9 114 1,315 13.3 14.6 59 113 8.1 1,385 17.1 1,385 325 23.5 1,059 49.3 1,010 1,010 18.1 11.2 29.7 29.7 18.1

August 19, 2013

GCPL | 1QFY2014 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 3,191 1,004 148 2,038 2,108 1,083 6,290 1,387 784 603 69 4,521 246 3,827 1,323 148 2,356 2,316 1,511 6,950 998 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 3,935 3,969 258.84 2,047 (14) 22 7 6,290 34 4,746 4,780 308.17 1,847 (14) 22 7 6,950 FY10 FY11 FY12 FY13E FY14E FY15E

August 19, 2013

GCPL | 1QFY2014 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 FY13E 928 77 167 23 179 50 1,066 (985) (985) 370 199 23 148 229 640 869 FY14E 1,183 99 (49) 8 278 4 966 (423) (423) (200) 199 8 (407) 136 869 1,004 FY15E 1,385 114 (119) (40) 325 9 1,024 (346) (346) (200) 199 (40) (359) 319 1,004 1,323

August 19, 2013

GCPL | 1QFY2014 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 95 14 6.5 59 37 91 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 19.3 148.3 24.8 19.9 133.0 24.2 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 25.1 25.1 29.5 5.0 116.6 29.7 29.7 34.5 5.0 140.5 87.4 74.0 28.2 0.5 14.4 72.2 29.5 61.6 53.1 16.4 0.6 8.6 49.1 8.4 54.0 46.5 10.5 0.5 6.4 35.8 6.5 42.4 35.9 9.0 0.6 4.9 31.1 5.4 34.7 29.6 7.5 0.6 3.9 24.4 4.9 29.4 25.3 6.2 0.6 3.4 21.1 4.4 FY10 FY11 FY12 FY13E FY14E FY15E

August 19, 2013

10

GCPL | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

August 19, 2013

11