GODREJ CONSUMER PRODUCTS

We recently met Mr. Dalip Sehgal, CEO and MD, Godrej Consumer Products (GCPL) to get

a business update. Following are the key takeaways of our interaction:

Confident of growth in both soaps and hair colour GCPL, post gaining a strong foothold in North India soaps market, has reiterated its

focus on expanding market share by entering new markets and increasing distribution

coverage and the number of sub Stockists. The company’s strategy of increasing

advertising in regional media, presence across the price spectrum, and introducing

new low-price-unit (LPU) products to tap rural demand is doing well. GCPL expects all

these measures to boost its market share in both soaps and hair colour.

New product launches continue to remain a priority GCPL has reached 50,000 touch points (barbers and saloons) and is looking to cater to

over 100,000 such touch points across the country with its hair care and grooming

products. The company introduced a new moisturising soap for winter under the

Godrej No. 1 brand and Protekt hand sanitisers, wipes, and hand wash using Key line

formulations, which have done well and have good growth potential.

Food inflation: Impacting lower end of urban and rural demand Lower end of rural and urban consumers will continue to be most impacted by

food inflation as they spend more (as % of income) on food. This will slow down

growth rates in the mass end of most FMCG segments over the near term.

International business: Spreading wings; scouting for acquisitions GCPL will expand the Rapidol and Kinky products into new categories/

geographies and is concurrently exploring viable acquisition opportunities.

Outlook and valuations: Bright prospects; maintain ‘BUY’ GCPL’s renewed focus on efficiency, new product pipeline, cost reduction, and

improving quality is likely to give it a competitive edge over peers. At CMP of INR 271,

the stock is trading at P/E of 21.9x and 18.5x and EV/EBITDA of 18.0x and 15.0x our

FY11E and FY12E, respectively. We maintain ‘BUY’ recommendation on the stock,

and rate it ‘Sector Outperformer’ on a relative return basis.

March 11, 2010

Reuters : GOCP.BO Bloomberg : GCPL IN

Absolute Rating BUY

Rating Relative to Sector Outperformer Risk Rating Relative to Sector High

Sector Relative to Market Underweight Note: Please refer last page of the report for rating explanation MARKET DATA CMP : INR 271

52-week range (INR) : 304 / 110

Share in issue (mn) : 308.2

M cap (INR bn/USD mn) : 83.5 / 1,838.6

Avg. Daily Vol. BSE/NSE (‘000) : 189.4

SHARE HOLDING PATTERN (%)

Promoters* : 73.5

MFs, FIs & Banks : 1.1

FIIs : 16.6

Others : 8.8

* Promoters pledged shares : 3.2 (% of share in issue) PRICE PERFORMANCE (%)

Stock Nifty EW FMCG Index

1 month 6.1 6.4 2.4 3 months (3.5) (0.2) (2.1) 12 months 118.4 98.3 61.2

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Abneesh Roy

+91-22-6620 3141

[email protected]

Nitin Mathur

+91-22-6620 3073

[email protected]

India Equity Research | FMCG Visit Note

GODREJ CONSUMER PRODUCTS

In the fast lane

EDELWEISS 4D RATINGS

Financials

Year to March FY08 FY09 FY10E FY11E

Revenues (INR mn) 11,026 13,930 19,635 22,975

Rev. growth (%) 15.7 26.3 41.0 17.0

EBITDA (INR mn) 2,145 2,037 3,880 4,493

Net profit (INR mn) 1,592 1,733 3,365 3,814

Shares outstanding (mn) 226 257 308 308

Diluted EPS (INR) 7.1 6.7 10.9 12.4

EPS growth (%) 18.7 (4.7) 62.6 13.3

Diluted P/E (x) 38.4 40.3 24.8 21.9

EV/EBITDA (x) 29.2 33.7 21.0 18.0

ROAE (%) 109.6 46.9 54.3 52.0

2 Edelweiss Securities Limited

FMCG

Confident of growth in both soaps and hair colour

Post gaining a strong foothold in North India in soaps, Mr. Sehgal has reiterated his focus on

expanding market share by entering new markets and increasing distribution coverage and

the number of sub Stockists. The company’s strategy of increasing advertising in regional

media, presence across the price spectrum and introducing new low-price-unit (LPU) products

to tap rural demand is doing well. GCPL expects all these measures to boost its market share

in both soaps and hair colour. It will also try to strengthen and widen rural penetration and

also explore viable opportunities to expand product portfolio.

Fig. 1: Dalip Sehgal, CEO and MD, Godrej Consumer Products (GCPL)

Source: Company, Edelweiss research

Soaps: GCPL has a 10.3% market share in this segment, which has a market size of INR 72.9 bn. There is substantial increase in brand investment by the company. Godrej No.1’s growth strategy will include increasing awareness, improving imagery, distribution extension and new product development. GCPL recently launched a moisturising soap at 15% premium (75 gm at INR 10 while the earlier SKU retailed at INR 10 for 90 gm). This new innovation has done well. It offers the consumer proposition of “soft skin” with ingredients of milk and almonds. Cinthol original was priced at INR 23. The company launched two new SKUs at INR 6 and INR 15 which are doing well. Smaller packs have done well particularly in smaller towns (Bihar – 70% sales in small packs). It also launched talc and deo under the Cinthol brand. In one third of the states, GCPL has a 17% market share, in one third 8-9% while in one third 5%. It is a leader in many North and West Indian states and sees immense potential in other areas. GCPL recently launched Cinthol skin protection talc in South and extension of Cinthol deodorant & complexion soap at more accessible price points of INR 6 and INR 15, respectively.

Edelweiss Securities Limited 3

Godrej Consumer

Chart 1: Soaps market share trend

7.7

8.4

9.1

9.8

10.5

11.2

Q1 Q2 Q3 YTD Dec'09

(%)

FY 09-10 FY08-09 Source: Company, Edelweiss research

Fig. 2: Godrej No. 1 soap


Godrej No.1 soap was launched in a new variant which offers consumers “beautiful, moisturized, and soft skin during winters”. Now, Godrej No.1 moisturising soap with milk cream and almond is available at INR 50 for a 100 gm pack of four, INR 40 for 75 gm pack of four, and INR 30 for 75 gm pack of three. It also launched a 140 gm SKU in natural and sandal variants in North India markets. Recent initiatives: GCPL, for the first time, launched a moisturising soap at a higher price point—15% premium to existing No.1 SKUs.

Fig. 3: Godrej No. 1 Moisturising soap



FMCG

Growth strategy

Fig. 4: Soaps


Cinthol soap: The strategy is to drive penetration of Cinthol original on the platform of skin protection expert in Tamil Nadu. In the rest of the country, GCPL plans to drive penetration of Cinthol Fresh and deo range. Also, it will increase penetration of deo sprays. Fig. 5: Cinthol range


Our view on competitive intensity in Soaps

As per media reports, HUL has decreased the price of Lux from INR 18 to INR 15 followed by

a decrease in grammage from 100 gram to 90 gram. On a price/gram basis, this is a

decrease of 7%. In our view, this again shows the aggression of HUL. We believe, costs have

gone up for FMCG players, due to excise duty increase and higher freight costs due to hike in

Petrol and diesel. In spite of this, price cut by HUL clearly shows its higher aggression in a

market that has is seeing slower volume growth among rural and urban poor consumers due

to impact of food inflation. This aggression is likely to impact other soap players as well. Hair colour

This category has market size of INR 9.3 bn and market share of 33.1%. GCPL has put aggressive thrust on revitalizing this portfolio. Its growth strategy in hair colour category is to strengthen the Godrej Expert proposition. It has also established Nupur as a natural


Godrej Consumer

alternative. The company has also strengthened its position in the premium hair colors space. Aggressive activation of salon drive is also one of the growth strategies. GCPL in this special drive ramped up distribution to ~ 50,000 barbers and offered value for money offer with professional tools and educative leaflets (for training). We expect GCPL to launch new innovations in hair color in the next two quarters and expect it to effect price increases through these new innovations in particular. Fig. 6: Godrej Expert Hair Colour- Dec 09 MS of 23.9%


Recent initiatives: Godrej Expert changed the packaging configuration to enable retailers to buy smaller pack size (four daughter cartons with 30 cartons of Expert PHD).The smaller SKU will strengthen Expert PHD in smaller wholesale outlets across the country.

Fig. 7: Godrej Expert


Nupur Hair Colour: Nupur is 100% natural mehendi (heena). Renew Hair creams are now available in six colours and GCPL recently launched shades of Plum Crazy and Wine Red.


FMCG

Fig. 8: Godrej Nupur Hair Colour


Rural distribution

Table 1: Distribution Parameters

YTD 9m Super stockiest Sales 39%

No. of Super stockists - 31st Dec 09 261 95- increase over Mar 09

No. of sub stockists- 31st Dec 09 5139 1571- increase over Mar 09

Area % of sales

Rural 24.0

Urban 76.0

Area Contribution to % growth in sales

Rural 39.0

Urban 61.0

Source: xxxx

Table 2: GCPL market share value trend – Rural Year Value market share (%)

Hair colour Soaps

Mar-09 40.9 41.3

Dec-09 8.7 9.4 Source: Company, Edelweiss research

New product launches to drive growth

GCPL continues to grow at a healthy pace in both soaps and hair color segments although growth rates have fallen due to food inflation and high base. The company will continue with innovations in both the segments. In hair colour it has identified two brands for investment viz., Godrej Expert and Renew, to spearhead its future growth. Godrej Expert will be relaunched next year and Godrej Renew is under test launch in Kolkata and the response has been encouraging.


Godrej Consumer

The company has reached 50,000 touch points (barbers and saloons) in the past few months and is looking to cater to over 100,000 such touch points across the country in the next six months with its hair care and grooming products. At 100,000 touch points, GCPL’s penetration will be at 20%, which we believe is commendable.

Mr. Sehgal emphasised on the strategy of continued innovation to drive growth. GCPL introduced a new moisturising soap for winter under the Godrej No. 1 brand and Protekt hand sanitizers, wipes and hand wash (post H1N1 awareness for use of hand sanitizers has increased) using Key line formulations.

Protekt range:This range includes Godrej Protekt hand sanitizer, hand wash and wet wipes available in three variants— original, citrus, and blossom.

Fig. 9: Protekt range


Urban and rural demand: Mixed signals At the higher end of consumers, there is a good revival of urban demand in the past few months. This can be attributed to overall buoyancy in the economy. Though job cut fears are behind us and hiring has started in a big way, lower end of rural and urban consumers will continue to be most impacted by food inflation as they spend more (as % of income) on food. This is more likely in mass end of FMCG segments like soaps and detergents. So, although long term drivers of consumer demand remain intact, volume growth is likely to slow down for most FMCG companies over the near term due to food inflation. Factors such as low-priced SKUs offered by various FMCG companies, better credit facilities available to farmers, further boost to rural infrastructure leading to better distribution and success of NREGS are likely to boost rural demand.

Food inflation: Impacting lower end of urban and rural demand

Summer (kharif) crop production fell by ~18% in FY10 compared with FY09. Despite good rabi crop expectations, CSO estimates a decline of ~0.2% in FY10 agri GDP. Due to food inflation, lower end of rural and urban consumers will continue to be most impacted as they spend more (as % of income) on food. This will slow down growth rates in mass end of most FMCG segments over the near term. So, although long term drivers remain intact, we believe near term volume growth for most FMCG companies will be impacted due to food inflation.

Volume growth to slowdown in most FMCG segments over near term


FMCG

Chart 2: Food inflation will impact demand

0.0

4.0

8.0

12.0

16.0

20.0

Jan-0

9

Feb-0

9

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-

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Aug-0

9

Sep-0

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-09

Nov-0

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Dec-

09

Jan-1

0

(%)

Source: CMIE, Edelweiss research

Some budget measures to fuel food inflation: Basic customs duty of 5% on crude petroleum, 7.5% on diesel and petrol, and 10% on other refined products was restored. Central excise duty on both petrol and diesel has been increased by INR 1 per litre. Though transportation of cereals and pulses by road and rail is now exempt from service tax, we believe, these measures will add to the already high food inflation number and food inflation could continue to remain in double digits in spite of a good rabi crop.

Rebound in palm oil prices overcome partially by switch to domestic supply

Palm oil prices have seen a sharp rebound in the past few months, but GCPL has been ahead of the curve and hedged its palm oil requirement till June 2010. Also, domestic sourcing has been a big positive as crude palm oil comes to India at zero import duty. Soap companies use the derivative of this crude palm oil, the supply of which is good and prices are much lower than international palm oil prices. However, GCPL may consider some price increases as transport costs have increased due to Union Budget measures. We believe this will help the company maintain gross margins and will give enough room to investment in advertising and new product launches. Chart 3: Palm oil price movement

0

800

1,600

2,400

3,200

4,000

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

(MYR

/tonne)

Source: Bloomberg, Edelweiss research


Godrej Consumer

International business GCPL is focusing on its ‘One Africa Strategy’—driving synergy between the 4 big African markets of South Africa, Nigeria, Kenya, and Central Africa. It will expand the Rapidol and Kinky products into new categories and concurrently explore viable acquisition opportunities.

Fig. 10: International Business


Keyline: It posted sales of INR 1,732 mn (growth of 10%) and net profit of INR 171 mn (growth of 60%) in 9mFY10. Its key brands are Cuticura Hand Hygiene Gel, which grew 110% in 9MFY10; Bio Oil, which achieved ‘Signature Brand Status’ in Boots; and P20, which is one of the largest selling sun care products. It is an efficient supplier to UK’s top retail groups like Boots, Superdrug, Tesco, Sainsbury, and Morrisons. The company has focused efforts on growing its own brand—Cuticura. SKUs of new Cuticura 50 ml and 1,000 ml rolled out to new retail chains recently. Fig. 11: Cuticura range


Rapidol: Rapidol posted sales of INR 519 mn (growth of 37%) and net profit of INR 91 mn (growth of 92%) in 9mFY10. It manufactures and markets the Inecto brand, a leader in hair colour in South Africa and many other countries in the African continent. It is available in Famous Originals, colour Range, Plus, Plus Highlights, Heena, Powder Hair Colour and Colour care ranges. It has also made an entry into the Caucasian hair colour market through launch of Renew.


FMCG

Fig. 12: Inecto range


Kinky Group: It posted sales of INR 584 mn (growth of 44%) and net profit of INR 37 mn in 9mFY10. Kinky is a leader in South African hair business with top of the line imagery. It includes products like hair braids, hair pieces, wigs, and wefted pieces, hair accessories like styling gels, hair sprays, and oil free shampoos. Kinky owns 24 stores.

Fig. 13: Kinky stores


Acquisition: GCPL continues to explore viable acquisition opportunities, both in India and overseas, and is in various stages of acquisition. These likely acquisitions will be in personal wash, hair colour, household insecticide categories and are likely in Asia, Africa and Latin America. The company’s balance sheet is strong and has INR 4 bn cash and is underleveraged. It can borrow if needed for the acquisitions. GCPL acquired 49% stake in Godrej Sara Lee w.e.f. June 1, 2009.

Acquisition of balance 51% in Sara Lee GCPL acquired 49% stake in Godrej Sara Lee (GSL, a 49:51 unlisted JV between the Godrej Group and Sara Lee Corporation, US) on June 01, 2009. GSL has market leadership in household, insecticides, air care, and hair cream in India with popular brands such as Goodknight, JET, Hit, AmbiPur, Brylcream, and KIWI, all of which have done well. The merger will help GCPL strengthen its position in the FMCG industry, offering it distribution, scale, and sourcing benefits. It will also give the company access to multiple product portfolios across categories, aiding better reach and trade terms for many of its brands. The balance stake of 51% is under negotiation and is likely to happen along with or after Sara Lee disposes assets in other geographies. We believe the acquisition of 49% stake in GSL could be a precursor to complete takeover of the JV by GCPL. Sara Lee globally is looking to exit the household care business. GCPL, being its JV partner in India, has first right of refusal as per the JV agreement, in case Sara Lee intends to sell its 51% stake in GSL. GCPL is also interested in Sara Lee’s household insecticides business in rest of the world (with a focus on Asia and Africa), which can further strengthen its entry into this segment.


Godrej Consumer

Chart 4: GCPL’s share in Godrej Sara Lee’s sales

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Net sales PBT PAT

(IN

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n)

Jun-09 - Dec'09


GCPL is getting synergy benefits from other group companies (Sara Lee and Hersheys) in ad rates and distribution (instead of 100 C&F earlier now they have 35. Post GST, likely to reduce further). Also, modern trade is being targeted together by these companies.


FMCG

Company Description

GCPL is a major player in the toilet soap and hair colour categories in the Indian FMCG market. It is a leader in the hair colour category and has a vast product range across various price points. Its brands include Godrej Hair Dye (liquid and powder), Godrej Kesh Kala oil, and Nupur hair dyes at the lower end, and Renew and Coloursoft at the higher end. It is the second-largest toilet soap marketer after Hindustan Unilever (HUL) with a ~10% market share. Its primary brands in the toilet soap market are Godrej No. 1, Cinthol, and FairGlow. GCPL completed the acquisition of 49% stake in Godrej Sara Lee Limited w.e.f. June 1, 2009. Godrej Sara Lee has under its portfolio several leading brands such as GoodKnight, JET, HIT, Ambipur, Brylcreem and KIWI. Godrej Sara Lee’s portfolio offers significant synergies to GCPL’s portfolio and all the brands are performing well. To expand its geographical presence, GCPL has made acquisitions in the past few years. In FY06, it acquired Keyline brands in the UK, with brands such as Cuticura and Erasmic at its disposal. In FY07, it acquired Rapidol, a South African company with presence across ten countries in Africa. It has recently acquired Kinky, one of the leaders in South African hair business for South African Rand 265 mn. Kinky offers a variety of products viz. hair braids, hair pieces, wigs and wefted pieces.

Investment Theme GCPL boasts of a patented technology for PHDs that has helped it drive usage of hair colours at the lower end of the market. The company also provides high-quality value-for-money soap brands, which has helped it garner market share. GCPL’s aggressive stance to take its operations to the international platform has resulted in three acquisitions in past three years. The company can be expected to benefit from its new ventures, increasing consumer spending and inorganic growth, going forward.

Key Risks GCPL’s ability to gain market share in its soap segment could be adversely impacted due to right pricing by HUL especially of its low end soap brand, Breeze. Intensifying competition could result in aggressive price war, which could impact GCPL’s pricing. The entry of players such as Garnier and L’oreal has put pressure on GCPL’s hair colour business because of which it has been losing market share at the top end of the market. Entry of more foreign players could worsen the situation.


Godrej Consumer

Financial Statements Income statement (INR mn)

Year to March FY08 FY09 FY10E FY11E FY12E

Net revenues 11,026 13,930 19,635 22,975 27,251

Cost of materials 5,184 7,668 9,660 11,373 13,489

Gross profit 5,842 6,262 9,974 11,602 13,762

Employee costs 725 865 1,290 1,521 1,913

Advertisement & sales costs 1,310 1,379 2,230 2,667 3,163

Other general expenditure 1,662 1,981 2,574 2,922 3,335

EBITDA 2,145 2,037 3,880 4,493 5,351

Depreciation 182 192 244 288 339

EBIT 1,963 1,845 3,636 4,205 5,012

Other income 40 88 100 100 110

EBIT incl. other income 2,004 1,933 3,736 4,305 5,122

Net interest 129 (159) (431) (419) (480)

PBT 1,875 2,092 4,168 4,724 5,602

Provision for taxation 283 366 803 910 1,079

Core PAT 1,592 1,726 3,365 3,814 4,523

Prior period items 0 6 0 0 0

Profit after tax 1,592 1,733 3,365 3,814 4,523

Profit after tax after Minority Interest 1,592 1,733 3,365 3,814 4,523

Equity shares outstanding (mn) 226 257 308 308 308

EPS (INR) basic 7.1 6.7 10.9 12.4 14.7

Diluted shares (mn) 226 257 308 308 308

EPS (INR) fully diluted 7.1 6.7 10.9 12.4 14.7

CEPS (INR) 7.9 7.6 11.7 13.3 15.8

DPS 4.1 4.0 6.4 7.2 8.6

Dividend payout ratio (%) 60.2 62.9 35.8 60.3 57.6

Common size metrics (%)


Cost of materials 47.0 55.0 49.2 49.5 49.5

Employee costs 6.6 6.2 6.6 6.6 7.0

Advertising & sales costs 11.9 9.9 11.4 11.6 11.6

Other general expenditure 15.1 14.2 13.1 12.7 12.2

Depreciation 1.6 1.4 1.2 1.3 1.2

Net interest expenditure 1.2 (1.1) (2.2) (1.8) (1.8)

EBITDA margin 19.5 14.6 19.8 19.6 19.6

EBIT margin 17.8 13.2 18.5 18.3 18.4

Net profit margin 14.4 12.4 17.1 16.6 16.6

Growth metrics (%)


Revenues 15.7 26.3 41.0 17.0 18.6

EBITDA 19.4 (5.0) 90.5 15.8 19.1

PBT 18.3 11.6 99.2 13.3 18.6

Net profit 18.7 8.4 94.9 13.3 18.6

EPS 18.7 (4.7) 62.6 13.3 18.6


FMCG

Balance sheet (INR mn)

As on 31st March FY08 FY09 FY10E FY11E FY12E

Share capital 226 257 257 257 257

Reserves 1,490 5,412 6,479 7,688 9,122

Shareholders' funds 1,716 5,668 6,736 7,945 9,379

Secured loans 921 2,296 2,296 2,296 2,296

Unsecured loans 950 480 480 480 480

Borrowings 1,871 2,776 2,776 2,776 2,776

Deferred tax (net) 89 42 42 42 42

Sources of funds 3,676 8,486 9,553 10,763 12,197

Gross block 2,937 3,370 3,840 4,412 5,112

Less depreciation 1,253 1,098 993 933 924

Net fixed assets 1,683 2,272 2,847 3,478 4,188

Capital work in progress 716 25 25 25 25

Investments 0 75 75 75 75

Intangible assets 956 2,086 2,086 2,086 2,086

Current assets 3,519 7,327 9,478 10,848 12,566

Inventories 1,916 1,675 2,786 3,259 3,866

Sundry debtors 510 602 995 1,165 1,381

Cash and bank balance 426 3,783 4,520 5,247 6,141

Loans and advances 668 1,268 1,178 1,178 1,178

Current liabilities 3,228 3,299 4,957 5,750 6,742

Liabilities 2,904 2,919 4,577 5,369 6,362

Provisions 323 380 380 380 380

Working capital 291 4,029 4,521 5,099 5,824

Misc expenditure 29 0 0 0 0

Uses of funds 3,676 8,486 9,553 10,763 12,197

BV (INR) 7.6 22.1 21.9 25.8 30.5

Cash flow statement


Net profit 1,592 1,733 3,365 3,814 4,523

Depreciation 182 192 244 288 339

Deferred tax 9 34 0 0 0

Others (105) 26 6 6 6

Gross cash flow 1,678 1,985 3,615 4,108 4,868

Less: Changes in WC 182 380 (244) (149) (170)

Operating cash flow 1,497 1,605 3,859 4,257 5,038

Less: Capex 271 781 819 920 1,048

Free cash flow 1,225 824 3,040 3,338 3,989

Cash flow metric (INR mn)


Operating cash flow 1,497 1,605 3,859 4,257 5,038

Financing cash flow (908) 3,168 (2,927) (3,221) (3,835)

Investing cash flow (638) (1,415) (196) (309) (308)

Net cash flow (49) 3,357 736 727 895

Capex (271) (781) (819) (920) (1,048)

Dividends paid (841) (1,002) (1,964) (2,226) (2,640)

Share issuance / (buyback) 0 3,816 0 0 0


Godrej Consumer

Ratios


ROAE 109.6 46.9 54.3 52.0 52.2

ROACE 58.5 30.5 40.7 41.7 43.9

Debtor days 16 15 15 17 17

Inventory days 115 85 84 97 96

Payable days 206 155 156 172 169

Current ratio 1.1 2.2 1.9 1.9 1.9

Debt/EBITDA 0.9 1.4 0.7 0.6 0.5

Cash conversion cycle days (74) (55) (57) (58) (56)

Debt/Equity 1.1 0.5 0.4 0.3 0.3

Adjusted debt/equity 1.1 0.5 0.4 0.3 0.3

Interest coverage (x) 15.3 (11.6) (8.4) (10.0) (10.4)

Operating ratios


Total asset turnover 3.3 2.3 2.2 2.3 2.4

Fixed asset turnover 6.7 7.0 7.7 7.3 7.1

Equity turnover 7.5 3.8 3.2 3.1 3.1

Du pont analysis


NP margin( %) 14.4 12.4 17.1 16.6 16.6

Total assets turnover 3.3 2.3 2.2 2.3 2.4

Leverage multiplier 2.3 1.7 1.5 1.4 1.3

ROAE (%) 109.6 46.9 54.3 52.0 52.2

Valuation parameters


Diluted EPS (INR) 7.1 6.7 10.9 12.4 14.7

Y-o-Y growth (%) 18.7 (4.7) 62.6 13.3 18.6

CEPS (INR) 7.9 7.6 11.7 13.3 15.8

Diluted P/E (x) 38.4 40.3 24.8 21.9 18.5

Price/BV (x) 35.7 12.3 12.4 10.5 8.9

EV/Sales (x) 5.7 4.9 4.2 3.5 2.9

EV/EBITDA (x) 29.2 33.7 21.0 18.0 15.0

Dividend yield (%) 1.5 1.5 2.4 2.7 3.2


FMCG RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

SECTOR RATINGS

Company Absolute Relative Relative

reco reco risk

Hindustan Unilever Buy SP L

ITC Buy SO L

Marico Buy SO M

Godrej Consumer Products Buy SO H

Nestle India Hold SU L

Asian Paints Buy SP M

Dabur Buy SO M

Colgate Palmolive India Hold SU M

United Sprits Buy SO H


Godrej Consumer

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Vikas Khemani Co-Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Head Research [email protected] +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): FMCG Asian Paints, Colgate, Dabur, Godrej Consumer, Hindustan Lever, ITC, Marico, Nestle and United Spirits

Godrej Consumer Products EW Indices

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Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 95 54 11 162

* 2 stocks under review

Market Cap (INR) 104 46 12

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total19-Feb-10 Nestle Strong domestic growth 2,642 Hold India margin pressure shows, as predicted; Result Update

03-Feb-10 Hindustan Corrections overdone; 237 Buy Uniliver aggressive stance in the right way to go; Result Update

29-Jan-10 Colgate Good quarter; yet again 679 Hold Palmolive Result Update

Date Company Title Price (INR) Recos

Recent Research

500

900

1,300

1,700

2,100

2,500

9-Mar-09 9-Sep-09 9-Mar-10

Godrej Consumer Products Ltd.EW FMCG IndexNifty

Hold

BuyBuy

Buy

Buy

90

136

182

228

274

320

Mar

-09

Apr-

09

May

-09

Jun-0

9

Jul-09

Aug-0

9

Sep

-09

Oct

-09

Nov-

09

Dec

-09

Jan-1

0

Feb-1

0

Mar

-10

(IN

R)

GODREJ CONSUMER PRODUCTS

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