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Home , Godrej Consumer Products, Hindustan Unilever

Consumer Goods On path to recovery; Essentials hold an upper edge Sector Update

Most consumer goods companies started Q4FY2020 with good growth, as Q4FY2020 Results Review gradual recovery was seen in the demand environment (especially in rural markets). However, the outbreak of COVID-19 resulted in a complete lockdown Sector: Consumer Goods in in the last 10-15 days of March, leading to complete stoppage of production and disruption in supply chain. This impacted sales volumes of most Sector View: Positive companies at the fag end of the quarter, resulting in weak Q4FY2020 numbers. Volumes of most companies (barring food companies) under our coverage declined by 3-22% in Q4FY2020 (revenue of Sharekhan universe declined by 7.8% y-o-y). Companies such as and Our coverage universe (TCPL) registered growth of 2.5% and 5-6% (at organic level), respectively, in Q4FY2020. On the other hand, companies such as CMP PT Companies Reco. (Rs) (Rs) (GCPL), , Jyothy Labs, and India posted double-digit decline in revenue, as pre-season inventory loading by dealers/distributors was affected 1,709 Buy 1,987 by the lockdown. On the international front, companies having large presence Britannia in Africa, Middle East and South East Asian countries registered lower sales in 3,623 Buy 4,060 Industries the international business affected by lockdown and macro headwinds. Lower raw-material prices (especially crude-linked inputs) and lower packaging costs Colgate- 1,383 Positive 1,551 aided gross margins of some companies to expand by 100-300 bps. Lower Palmolive (India) operating leverage resulted in OPM of most companies to decline by 40-590 Dabur India 466 Positive 515 bps. PAT for Sharekhan consumer goods universe (excluding Zydus Wellness Emami 230 Hold 240 and TCPL) declined by 5.4% y-o-y in Q4FY2020. Godrej Consumer Outlook 708 Buy 810 Products Recovery expected by H2FY2021: In the backdrop of the pandemic situation, Hindustan consumer goods companies were impacted by supply disruption caused by the 2,162 Buy 2,305 lockdown. Production was completely on halt till mid-April 2020 and gradually ITC 200 Buy 240 started with lower capacity utilisation. Post the easing of lockdown norms, most companies scaled up their capacity utilisation and are currently operating at Jyothy Labs 125 Buy 140 85-90% of pre-COVID levels. Distribution and supply are also coming back to 352 Buy 405 normalcy with permission for inter-state transport for essential products. Essential categories such personal wash, detergents, home care, and health and hygiene Tata Consumer 405 Positive 443 are gaining strong traction, while categories such as biscuits, breads, noodles, Products and branded atta are witnessing strong double-digit growth. Rural markets are Zydus Wellness 1,406 Buy 1,520 witnessing faster recovery than urban markets. Overall, Q1FY2021 is expected to be subdued for consumer goods companies (barring food companies). We expect business to attain normalcy for consumer goods companies by Q2FY2021 (except for discretionary categories such as paints). Recovery in rural demand, shift to branded products, strong demand for health and hygiene products, and expansion in distribution reach are near to medium-term catalysts of growth for consumer goods companies. Benign input prices, lower packaging cost, and stringent cost- cutting measures would reduce margin pressure in the near term. However, the same are expected to be better off with recovery in volume growth in the coming Price chart quarters.

65000 14000 Valuation 55000 We prefer companies with a strong brand portfolio, having strong presence in rural 45000 9000 markets and stable balance sheet with good liquidity position to take care of near- 35000 term uncertainties. In view of this, we like (HUL) as more than 25000 80% of its product portfolio is essential in nature and derives ~50% of revenue 15000 4000 from the rural market, and Asian Paints as strong recovery is expected in FY2022 15 16 17 18 19 20 ------due to higher pent-up demand and market share gains, in the large-cap space. Jul Jul Jul Jul Jul Jul Favourable risk-reward and visible recovery in core cigarette business makes BSE Sensex BSE FMCG Index ITC a preferred bet in the FMCG space. In the mid-cap space, we like TCPL as its synergistic benefits post the merger of provides stable earnings visibility in the near to medium term. Key risks Any sustained slowdown in the domestic market or significant increase in the key input prices would act as a key risk to earnings estimates of consumer good companies. Leaders in Q4FY2020: Britannia Industries, Asian Paints, and TCPL Laggards in Q4FY2020: HUL, Emami, Jyothy Labs, and GCPL Preferred Picks: Asian Paints, HUL, ITC, and TCPL

July 06, 2020 12 Sector Update

Q4FY2020 results snapshot Rs. cr Net sales (Rs cr) OPM (%) BPS Adjusted PAT (Rs cr) Companies YoY % YoY % Q4FY20 Q4FY19 Q4FY20 Q4FY19 (YoY) Q4FY20 Q4FY19 FMCG Companies Asian Paints 4635.6 4991.5 -7.1 18.5 17.8 79 480.2 489.0 -1.8 Britannia Industries 2867.7 2799.0 2.5 15.8 15.6 24 372.5 294.6 26.5 Emami 532.7 639.6 -16.7 18.5 24.2 -569 81.9 108.8 -24.7 Godrej Consumer Products 2153.8 2452.6 -12.2 22.1 23.6 -151 298.2 408.2 -27.0 Hindustan Unilever 9011.0 9945.0 -9.4 22.9 23.3 -42 1469.0 1589.1 -7.6 ITC 11420.0 12206.0 -6.4 36.5 37.5 -100 3457.1 3481.9 -0.7 Jyothy Labs 382.3 504.3 -24.2 10.5 16.4 -587 26.0 67.1 -61.2 Marico 1496.0 1609.0 -7.0 18.9 18.3 58 206.5 215.0 -4.0 Total 32499.1 35147.0 -7.5 26.0 26.5 -57 6391.4 6653.7 -3.9 Soft coverage Colgate-Palmolive (India) 1071.3 1153.8 -7.1 24.5 26.9 -237 197.7 201.2 -1.7 Dabur India 1865.4 2128.2 -12.3 18.9 21.5 -260 298.0 422.0 -29.4 Total 2936.6 3281.9 -10.5 20.9 23.4 -244 495.7 623.2 -20.5 Grand Total (excluding Zydus & 35435.7 38428.9 -7.8 25.6 26.3 -71 6887.1 7276.9 -5.4 TCPL) Tata Consumer Products** 2405.0 1775.5 35.5 12.8 9.8 301 70.5 41.6 69.5 Zydus Wellness# 487.9 416.2 17.2 21.4 20.8 66 71.9 72.8 -1.1 Grand Total 38328.6 40620.6 -5.6 24.7 25.5 -79 7029.6 7391.3 -4.9 Source: Company, Sharekhan Research *Tata Consumer Products Limited (TCPL) Q4FY2020 includes consolidation of consumer business of Tata Chemicals; #Zydus Wellness Q4FY2019 includes only two months of Heinz portfolio

Valuations EPS (Rs) PE (x) Reco./ Price Companies CMP (Rs) FY20 FY21E FY22E FY20 FY21E FY22E View target (Rs.) Under active coverage Asian Paints 1,709 29.0 26.0 34.7 58.9 65.7 49.3 Buy 1,987 Britannia Industries 3,623 58.6 72.3 84.6 61.8 50.1 42.8 Buy 4,060 Emami 230 11.4 10.5 12.6 20.2 21.9 18.3 Hold 240 Godrej Consumer Products 708 14.3 15.3 18.4 49.5 46.3 38.5 Buy 810 Hindustan Unilever 2,162 31.9 32.5 43.5 67.8 66.5 49.7 Buy 2,305 ITC 200 12.4 11.2 12.9 16.1 17.9 15.5 Buy 240 Jyothy Labs 125 4.3 4.4 5.6 29.1 28.4 22.3 Buy 140 Marico 352 8.3 8.1 10.1 42.5 43.4 35.0 Buy 405 Zydus Wellness 1,406 32.2 30.3 33.7 43.7 46.4 41.7 Buy 1,520 Viewpoint ideas Colgate-Palmolive (India) 1,383 30 26.6 31.4 46.1 52.0 44.0 Positive 1,551 Dabur India 466 8.6 8.4 10.9 54.2 55.5 42.8 Positive 515 Tata Consumer Products 405 7.2 7.6 10.1 56.3 53.3 40.1 Positive 443 Source: Company, Sharekhan estimates # TCPL earnings estimates are including the financials of consumer business Tata Chemicals

July 06, 2020 13 Sector Update

Volumes declined in Q4FY2020 due to disruptions amid the lockdown in March Companies Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 HUL consumer business (vol) 12.0 10.0 10.0 7.0 5.0 5.0 5.0 -7.0 HUL consumer business (val) 4.0 1.0 1.3 2.3 1.6 2.0 -2.4 -2.4 ITC Cigarette business (vol) 1-1.5 5-6 7.0 8-9 3.0 3.0 2.0 -10.0 ITC Cigarette business (val) 5.1 5.1 2.6 2.0 3.0 3.0 2.7 -1.7 GCPL soap (val) 10.0 11.0 1.6 -1.0 3.0 -4.0 -4.0 -23.5 GCPL home insecticide (val) 17.0 -2.0 25.0 -6.0 -4.0 4.0 3.2 -16.3 GCPL hair colour (val) 12.0 21.0 0.6 7.0 0.0 2.0 -3.7 -23.4 Marico Group (vol) 10.4 6.0 5.0 8.0 6.0 1.0 -1.0 -3.0 Marico Group (val) 9.4 13.6 8.0 -1.0 7.0 -3.8 -4.0 -4.0 Marico (Parachute) - (vol) 9.0 8.0 9.0 6.0 9.0 0.0 -2.0 -8.0 Marico (Saffola) - (vol) 10.0 5.0 2.0 18.0 3.0 1.0 11.0 25.0 Marico (VAHO) - (vol) 15.0 5.0 7.0 1.0 7.0 0.0 -7.0 -11.0 Jyothy Lab (vol) 18.5 4.4 6.1 6.0 5.6 8.3 -5.6 -22.0 Jyothy Lab (val) 2.0 2.7 0.2 0.3 2.3 0.0 -0.6 -2.0 Emami (vol) 16.0 -4.0 3.5 0.0 0.0 1.0 -2.0 -19.0 Emami (val) 3.0 0.0 3.5 3.0 2.0 2.4 0.6 -2.0 Dabur (vol) 21.0 8.1 12.4 5.9 9.6 4.8 5.6 -14.6 Dabur (val) 3.7 0.4 2.7 4.3 -0.3 -0.7 0.0 2.3 Colgate (vol) 4.0 7.0 7.0 3.0 4.0 4.0 2.3 -8.0 Colgate (val) 2.5 1.0 -0.6 2.7 2.0 0.6 2.0 1.0 Source: Company, Sharekhan Research

Gross margins remained high on a y-o-y basis for few companies Gross Margins (%) Companies Q4FY20 Q3FY20 Q2FY20 Q1FY20 Q4FY19 Q3FY19 Q2FY19 Q1FY19 Q4FY18 HUL 53.7 54.2 54.5 54.0 52.3 53.8 52.0 54.0 52.6 Britannia Industries 39.7 40.9 40.2 40.4 41.2 41.3 40.0 40.0 38.5 Colgate-Palmolive 64.7 65.7 64.7 65.9 64.6 65.1 64.8 65.9 65.7 GCPL 57.7 56.7 56.6 57.1 58.7 56.3 52.8 55.8 59.0 Marico 49.3 49.1 49.6 47.5 49.0 46.3 44.0 42.3 46.6 Zydus Wellness 53.9 52.0 56.7 58.4 59.8 68.0 68.9 68.5 66.7 Dabur India 49.1 50.1 50.8 49.5 49.8 49.3 49.4 49.6 50.7 Emami 65.2 68.2 69.7 64.2 60.8 67.0 68.6 66.3 65.2 Jyothy Laboratories 44.7 47.7 45.6 47.7 44.5 45.4 45.9 47.0 46.7 Source: Company, Sharekhan Research

OPM stood higher for most companies under our coverage Companies Q4FY20 Q3FY20 Q2FY20 Q1FY20 Q4FY19 Q3FY19 Q2FY19 Q1FY19 Q4FY18 HUL 22.9 24.9 24.8 26.2 23.3 21.4 21.9 23.7 22.5 Britannia Industries 15.8 16.8 16.1 14.6 15.6 15.9 15.8 15.3 15.6 Colgate-Palmolive 24.5 27.6 26.5 27.6 26.9 28.6 28.2 27.0 28.2 GCPL 22.1 22.7 21.9 19.5 23.6 22.6 18.3 18.1 23.9 Marico 18.9 20.4 19.3 21.3 18.3 19.3 16.0 17.5 17.0 Zydus Wellness 21.4 9.8 6.3 18.0 20.8 25.9 27.9 8.1 25.4 Dabur India 18.9 20.9 22.1 20.1 21.5 20.3 21.2 18.6 23.9 Emami 18.5 32.5 30.1 20.8 24.2 32.5 29.8 20.1 28.1 Jyothy Laboratories 10.5 16.0 17.0 15.9 16.4 16.5 17.1 15.1 17.1 Source: Company, Sharekhan Research

July 06, 2020 14 Sector Update

Upward/Downward revision in the earnings estimates in Q4FY2020 Target Change in esti- Current Previous Companies Reason Price mates Reco. Reco. (Rs.) Asian Paints Revised We have lowered our earnings estimates for FY2021 Buy - 1,987 downwards and FY2022 to factor in slow recovery in urban markets and the industrials segment. APL has strong positioning in the decorative paints segment with strong product portfolio (straddling the pyramid) and enhanced distribution reach. The shift in demand from unorganised to organised products at the bottom of the pyramid provides scope to gain share in the domestic market. APL’s strong cash flows and good relationship with dealers/distributors will help post an early recovery in a stable business environment.

Britannia Revised We have increased our earnings estimates for FY2020 Buy Buy 4,060 Industries upwards and FY2021 to factor in higher growth in Q1FY2021 and better-than-expected OPM. Rise in demand due to strong growth in in-house consumption and consumers shifting to trusted brands will help Britannia achieve incremental volume growth in the near to medium term. With adjacent product categories (including cakes and wafer biscuits) gaining good traction, the company is inching towards becoming a total foods company.

Emami Revised We have reduced our earnings estimates for FY2021 Hold Hold 240 downwards and FY2022 to factor in the impact of supply disruption caused by the lockdown in the domestic market. Sustained new launches and expansion in distribution reach would help the company to post improved performance in the coming years. The group’s focus on reducing promoters pledged shares augurs well for the company. We will keenly monitor the performance in the coming quarters. Any consistent improvement in the performance and reduction in the pledged shares would act as a key rerating trigger for the stock.

Godrej Revised We have lowered our earnings estimates for FY2021 Buy Buy 810 Consumer downwards and FY2022 to factor in the impact of supply disruptions Products in India and Africa. Value-for-money products in each category and health and hygiene products (forming about 70% of GCPL’s product portfolio) is essential in nature and will help in posting recovery in the coming quarters. Resurgence in the HI category and market share gains in other categories would help the company to deliver good growth in the medium to long term.

Hindustan Fine-tuned We have trimmed our FY2021 and FY2022 earnings Buy Buy 2,305 Unilever estimates of HUL to factor in near-term uncertainties. Sustained innovation (especially in hygiene categories), expanding distribution reach, and increasing market share in core categories remain some of the key growth drivers in the long run. The merger of GSK Consumer’s business would enhance the growth prospects of the foods and refreshment business in the long run.

ITC Revised We have lowered our earnings estimates for FY2021 and Buy Buy 240 downwards FY2022 to factor the impact of supply disruption caused by the lockdown in Q1FY2021. ITC’s key businesses have recovery close to pre-COVID-19 levels. Strong cash flows and extensive distribution reach (pan-India) will help ITC to gain market share from small players in the coming quarters. Dividend yield of 5.2% makes it a good bet in the FMCG space.

July 06, 2020 15 Sector Update

Upward/Downward revision in the earnings estimates in Q4FY2020 Target Change in esti- Current Previous Companies Reason Price mates Reco. Reco. (Rs.) Jyothy Labs Revised We have reduced our earnings estimates for FY2021 Buy Buy 140 downwards and FY2022 to factor in the dismal performance in Q4 and muted performance in the fabric care space. The company is focusing on increasing its portfolio towards the homecare and hygiene segment with new product launches under existing brands. We expect FY2021 to be a low growth year but expect earnings growth to recover to double-digits in FY2022.

Marico Revised We have reduced our earnings estimates for FY2021 and Buy Buy 405 downwards FY2022 to factor in the impact of disruption caused by outbreak of COVID-19. Marico has revamped its growth strategies with focus on providing value preposition to consumers in existing categories, launching new products in the health and hygiene categories, enhancing the direct distribution reach (especially in the rural market), and stringent cost-saving initiatives, which would help the company to achieve double-digit earnings growth in the medium term.

Zydus Wellness Revised We have reduced our earnings estimates for FY2021 and Buy Hold 1,520 downwards FY2022 to factor in the impact of supply disruption due to the lockdown. With the acquisition of Heinz product portfolio, ZWL has a strong brand portfolio, which it can leverage upon to improve its market share through new launches supported by enhancing distribution reach. Further, strong cash flows along with relatively stable balance sheet provide support to overall growth prospects.

Under soft coverage

Colgate- Revised Though FY2021 will be affected by COVID-19, we expect Positive Positive 1,551 Palmolive (India) downwards Colpal to recover in FY2022 with double-digit growth in revenue and earnings. Increased demand for personal hygiene products opens avenues for Colpal to improve growth prospects in the long run.

Dabur India Revised We have reduced our earnings estimates for FY2021 and Positive Positive 515 downwards FY2022 to factor in the impact of supply disruption due to the lockdown led by COVID-19 pandemic. In view of a strong product portfolio, especially in health and hygiene categories, and good traction to recent launches, we expect Dabur to post faster recovery in its performance post normalisation of the business environment.

Tata Consumer Revised We have reduced our earnings estimates for FY2021 to Positive Positive 443 Products downwards factor in the impact of supply disruption caused by the / Broadly lockdown in India, while we maintain our estimates for maintained FY2022 as we expect an early recovery as the portfolio is tilted towards essentials and expected synergistic benefits from merger of Tata Chemicals’ consumer business to drive better margins. The revamped leadership has enhanced its focus on delivering profitable earnings growth by leveraging upon expanded product portfolio and improving return ratios in the coming years.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

July 06, 2020 16 Marico Limited Q1FY21 will be disrupted; steady recovery from Q2 anticipated Stock Update Stock

Marico’s capacity utilisation improved to 90% in most of its plants since mid- Sector: Consumer Goods May 2020 versus 70-80% in April 2020. Production of key products such as Company Update edible oil and foods was resumed in April and reached normalcy in May. On the other hand, manufacture of hair oils and products resumed in Change May 2020 at lower levels and scaled up in June 2020. The distribution network also progressively improved in May and is operating at normal levels in most Reco: Buy ßà of the regions. As per Marico’s provisional update for Q1FY2021 itexpects to clock a double-digit fall in India business revenues led by a low-teen decline in CMP: Rs. 352 volume (especially of Parachute rigid packs and value-added hair oils). Saffola edible oil clocked strong double-digit volume growth due to increase in in-house Price Target: Rs. 405 á consumption. International business registered a mid-single digit decline in revenues on constant currency (CC) basis. Bangladesh stayed resilient despite á Upgrade No change Downgrade ßà â a lockdown till May-end, registering double-digit revenue growth on CC basis. A slowdown in discretionary spending led to mid-single digit decline in the Company details revenues of Vietnamese business on CC basis. Overall, the company expects a double-digit revenue decline in Q1FY2021 (we expect more than a 20% decline Market cap: Rs. 45,480 cr in revenues). However, consolidated OPM is expected to expand y-o-y led by benign input prices and stringent cost-saving measures (including a sharp cut 52-week high/low: Rs. 404/234 in ad-spends).

NSE volume: (No of Outlook 23.3 lakh shares) Expect to bounce back with volume and value growth for rest of the fiscal: Parachute and the value-added hair oil portfolio (especially at the bottom of BSE code: 531642 the pyramid) witnessed healthy trend in April and May, giving us visibility on better sales volume in both the portfolios in the coming quarters. Saffola would NSE code: MARICO maintain strong volume growth momentum due to increase in in-house cooking and consumption. Discretionary products such as male grooming and serum will Sharekhan code: MARICO take some time for recovery. Since Q1 contributes to over 30% of overall fiscal revenues, we expect the full-year number for the domestic business to drop Free float: (No of y-o-y in FY2021. Though Egypt, South Africa and Middle East continued to get 52.2 cr shares) affected by pandemic situation and economic slowdown it will not impact overall performance much, as contribution from these regions is low. The international business is expected to post marginal growth in FY2021 driven by strong growth Shareholding (%) in Bangladesh and expected recovery in Vietnamese business. Consolidated OPM is expected to remain flat on y-o-y basis in FY2021. Promoters 59.6 Our Call FII 23.8 View: Maintain Buy with a revised PT of Rs. 405: We have fine-tuned our earnings estimates to factor-in recovery in the performance to 100% in Q2FY2021 DII 9.7 than earlier anticipation of 90% in some of the key categories. The company’s balance sheet is stable with a debt:equity ratio of 0.2x. A recovery in performance Others 6.9 of core brands and market share gains remain near-term growth drivers, while new sustained launches and scale in growth of newer categories would be long- term growth drivers. The stock is trading at 35x its FY2022E EPS. We maintain our Buy recommendation on the stock with a revised PT of Rs. 405 (valuing the stock Price chart at 40x its FY2022E earnings). 450 Key Risks 400 350 A slow recovery in domestic volume growth would act as a key risk to our earnings 300 estimates in the near term. 250 200 Valuation (Consolidated) Rs cr 19 19 20 20 - - - - Particulars FY18 FY19 FY20 FY21E FY22E Jul Jul Nov Mar Revenue 6,333 7,334 7,315 7,152 8,318 OPM (%) 18.0 17.3 19.9 20.1 20.9 Price performance Adjusted PAT 828 939 1,069 1,047 1,300 (%) 1m 3m 6m 12m Adjusted EPS (Rs.) 6.4 7.3 8.3 8.1 10.1 P/E (x) 54.9 48.4 42.5 43.4 35.0 Absolute 6.0 23.9 6.0 -5.1 P/B (x) 17.9 15.2 15.0 13.0 10.8 Relative to EV/EBIDTA (x) 39.6 35.3 30.8 31.0 25.2 -0.1 2.6 16.3 0.6 Sensex RoNW (%) 34.0 33.9 35.5 32.2 33.8 RoCE (%) 41.0 40.6 41.3 38.9 43.1 Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

June 29, 2020 17 Godrej Consumer Products Household insecticides gaining good traction Stock Update Stock

Godrej Consumer Products Ltd (GCPL’s) capacity utilisation has reached Sector: Consumer Goods 90% in June 2020 from 75% in April 2020. According to GCPL’s provisional Company Update update, household insecticide (HI) and hygiene products are gaining strong traction as consumer sentiments have become very cautious in the Change pandemic environment and further availability of low-priced illegal incense sticks reduced in the market. On the other hand, it witnessed lower demand Reco: Buy ßà for hair colours and air fresheners. It is likely to post mid-single digit growth in domestic revenues, largely a volume led growth in Q1FY2021. On CMP: Rs. 708 international front, despite disruptions caused by COVID-19, the Indonesian business is expected to clock mid-single digit revenue growth. Latin America Price Target: Rs. 810 á business is expected to be flat on constant currency basis (likely to decline in rupee terms). GUAM business (largely Africa) witnessed more than 20% á Upgrade ßà No change â Downgrade decline in the revenues due to disruption caused by COVID-19 and slowdown in the macro-economic environment. Benign packaging costs and stringent Company details cost-cutting measures would help in supporting margins in the near term. Nisaba Godrej new MD of GCPL - will work on getting back company into Market cap: Rs. 72,380 cr the growth momentum 52-week high/low: Rs. 772/425 Post the exit of Mr.Vivek Gambhir as Managing Director (MD) of the company, Ms. Nisaba Godrej has been appointed as the MD of the company till September NSE volume: (No of 2022. Her key focus area would be to get back GCPL into a sustained growth 12.5 lakh shares) phase by taking tough and decisive action in the near future. According to her personal hygiene and HI will be key growth drivers in the near term. She BSE code: 532424 is planning to launch 40 new products under health & hygiene category in the coming quarters. GCPL launched several new products and will be launching many new products in international markets such as Indonesia, NSE code: GODREJCP Chile and Africa. The company expects hygiene products to contribute ~5% in the Q1FY2021 and expect the contribution to further increase in the near Sharekhan code: GODREJCP to medium term. Globally, she is positive about Indonesia due to its stable economy while in Africa the company will take adequate steps to revamp the Free float: (No of 37.6 cr growth in the near term. Further the stable balance sheet with cash positioning shares) of close to Rs. 800 crore and a debt:equity ratio of 0.5x in FY2020 provides enough leg room to recover from uncertain times. Our Call Shareholding (%) Maintain Buy with revised PT of Rs. 810: We have revised upwards our Promoters 63.2 earnings estimates by ~10% and 6% for FY2021 and FY2022 respectively to factor in better-than-earlier expected performance for FY2021 and FY2022. FII 26.3 GCPL’s domestic business is coming back on track with improving demand for HI products (~40% of domestic business) and strong traction for personal wash and hygiene products. On the international front, we expect faster recovery in DII 3.1 geographies such as Indonesia and in some of part of Africa (largely southern Africa and western Africa where the impact of pandemic was relatively less). Others 7.3 Though GCPL’s stock price has run up in the recent times it is trading below its historical average at 38x its FY2022E earnings. We maintain our Buy recommendation on the stock with revised price target of Rs. 810 (valuing the Price chart stock at 44x its FY2022E earnings). 800 Key Risks 700 Any sustained slowdown in core categories or subdued performance by key 600 geographies would act as a key risk to earnings estimates in the near to medium term. 500 400 19 20 19 20 - - - - Valuation (consolidated) Rs cr Jul Jul Nov Mar Particulars FY18 FY19 FY20E FY21E FY22E Revenue 9,937.0 10,314.3 9,910.8 10,434.3 11,364.6 Price performance OPM (%) 21.1 20.7 21.6 21.0 22.4 Adjusted PAT 1,493.1 1,478.5 1,462.0 1,563.8 1,882.3 (%) 1m 3m 6m 12m Adjusted EPS (Rs.) 14.6 14.5 14.3 15.3 18.4 P/E (x) 47.8 48.3 48.9 45.7 38.0 Absolute 7.6 26.7 1.6 8.6 P/B (x) 7.6 9.8 9.0 8.4 7.6 Relative to EV/EBIDTA (x) 24.9 35.3 35.0 34.2 29.4 1.4 5.3 11.9 14.4 Sensex RoNW (%) 25.8 21.9 19.3 19.1 21.1 RoCE (%) 17.4 17.5 16.6 16.4 18.6 Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

June 29, 2020 18 Know more about our products and services

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