Godrej Consumer Products Refer to Important Disclosures at the End of This Report

India Equity Research | Consumer Goods December 20, 2020 Company Update

Godrej Consumer Products Refer to important disclosures at the end of this report

India business – steady outlook

CMP: Rs 720 TP: Rs 700 (■) Rating: HOLD (■) Upside: (2.8) % as of (December 20, 2020) 12 months

. GCPL, in its India business update by Mr. Sunil Kataria (Head India & SAARC), highlighted Change in Estimates category trends after Covid-19 and plans to benefit from the positive trends in health & EPS Chg FY21E/FY22E (%) -/ hygiene. Overall, with hair colors also picking up and the health & hygiene portfolio doing Target Price change (%) NA well, the India business looks well-placed. Target Period (Months) 12 . Though HI has benefited after Covid-19, the category remains prone to weather changes; Previous Reco HOLD hence, volatility is part of the game. The focus is on efficacious products and Emkay vs Consensus premiumization – new disruptive innovations are lined up. Management sees high-single EPS Estimates digit HI growth. FY21E FY22E . Soaps growth continues to be strong on increased hygiene; GCPL has consistently gained Emkay 16.4 18.0 share in soaps and is now betting on Rs15 powder handwash to enhance its presence in Consensus 16.7 18.7 that category. The faster-than-expected pick-up of hair colours is a positive sign. Mean Consensus TP (12M) Rs 771 Stock Details . The India business seems well-placed to deliver improved growth momentum. We currently maintain our earnings forecasts due to rising input price inflation. Valuations at Bloomberg Code GCPL IN 35x FY23E EPS appear fair. Maintain Hold with TP of Rs700. Face Value (Rs) 1 Shares outstanding (mn) 1,022 . HI volatility part of category; focus is on efficacious products: Management indicated that 52 Week H/L 772 / 425 increased health consciousness after Covid-19 outbreak has led to higher HI growth and an M Cap (Rs bn/USD bn) 736 / 10.01 increase in penetration (up 3ppts). Though some of it may reverse, management expects low- Daily Avg Volume (nos.) 16,53,480 single digit to high-double digit growth in HI. The short-term volatility may remain as it continues Daily Avg Turnover (US$ mn) 15.8 to be affected by weather changes. The focus will be on launching efficacious products and drive premiumization. Among new innovations, Good Knight Gold Flash is already doing well. Shareholding Pattern Sep '20 In AP and Telangana, the company launched Smart Spray, a non-gas spray, and an anti-roach Promoters 63.2% segment in Karnataka, which is still in its test-marketing phase. Management mentioned many FIIs 26.8% more disruptive launches in the next 6-8 months. The non-mosquito category (~12% of portfolio) DIIs 3.1% has been growing well and opportunity remains large. Public and Others 6.9% . Personal care outlook remains strong led by soaps; pick-up in hair colours is positive: Focus on hygiene categories seems to have increased after Covid-19, with soaps recording Price Performance stronger growth and hand wash penetration increasing to 34% from 19% (moved to 19% from (%) 1M 3M 6M 12M 0% in 15 years). Soaps have been consistently gaining share and it is betting on Rs15 hand Absolute 5 1 12 6 wash powder to gain presence. The focus on other hygiene formats like sanitizers and Rel. to Nifty (1) (16) (18) (6) disinfectant sprays is low as these are small and may see a decline. Discretionary spending is coming back faster than expected, and the company is seeing pick-up in demand for hair colors Relative price chart

and remains optimistic about its performance. 775 Rs % 30

. Other takeaways: GT is picking up while MT is expected to go through structural changes in 700 20 terms of promotions and assortment of products. Management expects 4% contribution from e- 625 10 commerce in FY21 and ~10% by FY24. It has entered the home cleaning segment and is positive on its prospects given the category’s size (~Rs15bn) and a lack of a second large and 550 0

trusted brand in the space. 475 -10

Please see our sector model portfolio (Emkay Alpha Portfolio): Consumer Goods & Retail (Page 6) 400 -20 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Financial Snapshot (Consolidated) Godrej Consumer Products (LHS) Rel to Nifty (RHS) (Rs mn) FY19 FY20 FY21E FY22E FY23E Source: Bloomberg Revenue 1,03,143 99,108 1,05,183 1,15,850 1,26,807 EBITDA 21,176 21,430 24,585 26,741 29,789

EBITDA Margin (%) 20.5 21.6 23.4 23.1 23.5

APAT 20,890 15,776 16,731 18,445 20,826 EPS (Rs) 14.5 13.8 16.4 18.0 20.4

EPS (% chg) 3.0 (4.8) 18.3 10.2 12.9 This report is solely produced by Emkay Global. The following person(s) are responsible for the production ROE (%) 30.9 20.8 20.1 20.0 20.4 of the recommendation:

P/E (x) 49.6 52.1 44.0 39.9 35.4 Ashit Desai EV/EBITDA (x) 35.7 35.3 30.5 27.7 24.6 [email protected] P/BV (x) 10.1 9.3 8.4 7.6 6.9 +91 22 6612 1340 Source: Company, Emkay Research

Emkay Research is also available on www.emkayglobal.com and Bloomberg EMKAY. Please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.

Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

Exhibit 1: One-year forward P/E band chart Exhibit 2: Consistency in growth can offer upsides to valuation

1000 70 900 50x 60 800 50 700 40x 600 40 500 30x 30 400 20 300 20x

200

Jun/13 Jun/14 Jun/15 Jun/16 Jun/17

100 Jun/12

Dec/12 Dec/13 Dec/14 Dec/15 Dec/16 Dec/17 Nov/18 Nov/19 Nov/20

May/18 May/19 May/20 0

1yr Fwd PE (x) Average PE

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15

Jul-10 Plus 1 SD Minus 1 SD

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-15 Source: Company, Emkay Research Source: Company, Emkay Research

December 20, 2020 | 2 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

Key Financials (Consolidated) Income Statement Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Revenue 1,03,143 99,108 1,05,183 1,15,850 1,26,807 Expenditure 81,967 77,678 80,598 89,109 97,018 EBITDA 21,176 21,430 24,585 26,741 29,789 Depreciation 1,700 1,973 2,098 2,150 2,246 EBIT 19,476 19,458 22,487 24,591 27,543 Other Income 1,088 1,123 1,123 1,213 1,310 Interest expenses 2,243 2,174 2,200 2,200 2,200 PBT 18,321 18,406 21,410 23,604 26,653 Tax (2,562) 2,638 4,689 5,169 5,837 Extraordinary Items 2,526 (811) 0 0 0 Minority Int./Income from Assoc. 6 8 10 10 10 Reported Net Income 23,415 14,966 16,731 18,445 20,826 Adjusted PAT 20,890 15,776 16,731 18,445 20,826

Balance Sheet Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Equity share capital 1,022 1,022 1,022 1,022 1,022 Reserves & surplus 71,647 77,961 86,514 95,758 1,06,361 Net worth 72,669 78,984 87,536 96,780 1,07,383 Minority Interest 0 0 0 0 0 Loan Funds 33,821 35,184 30,184 25,184 20,184 Net deferred tax liability (5,348) (5,960) (6,556) (7,212) (7,933) Total Liabilities 1,01,141 1,08,207 1,11,164 1,14,752 1,19,634 Net block 86,703 92,314 93,016 93,666 94,220 Investment 5,160 6,720 6,720 6,720 6,720 Current Assets 42,850 42,756 47,694 53,411 60,810 Cash & bank balance 8,947 7,702 11,071 13,076 17,000 Other Current Assets 5,106 5,826 6,261 6,895 7,550 Current liabilities & Provision 34,092 34,153 36,836 39,615 42,686 Net current assets 8,758 8,603 10,858 13,796 18,124 Misc. exp 0 0 0 0 0 Total Assets 1,01,141 1,08,207 1,11,164 1,14,752 1,19,634

Cash Flow Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E PBT (Ex-Other income) (NI+Dep) 17,234 17,283 20,287 22,391 25,343 Other Non-Cash items 0 0 0 0 0 Chg in working cap (11,203) (1,702) 518 (1,589) (1,125) Operating Cashflow 16,155 17,411 21,548 21,206 24,147 Capital expenditure (4,934) (7,634) (2,800) (2,800) (2,800) Free Cash Flow 11,221 9,777 18,748 18,406 21,347 Investments 4,813 (1,560) 0 0 0 Other Investing Cash Flow 904 3,090 (1,123) (1,213) (1,310) Investing Cashflow 1,870 (4,981) (2,800) (2,800) (2,800) Equity Capital Raised 341 0 0 0 0 Loans Taken / (Repaid) (1,117) 1,363 (5,000) (5,000) (5,000) Dividend paid (incl tax) (14,786) (9,859) (8,178) (9,201) (10,223) Other Financing Cash Flow (875) (3,005) 0 0 0 Financing Cashflow (18,680) (13,675) (15,378) (16,401) (17,423) Net chg in cash (655) (1,246) 3,369 2,005 3,924 Opening cash position 9,602 8,947 7,702 11,071 13,076 Closing cash position 8,947 7,702 11,071 13,076 17,000 Source: Company, Emkay Research

December 20, 2020 | 3 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

Key Ratios Profitability (%) FY19 FY20 FY21E FY22E FY23E EBITDA Margin 20.5 21.6 23.4 23.1 23.5 EBIT Margin 18.9 19.6 21.4 21.2 21.7 Effective Tax Rate (14.0) 14.3 21.9 21.9 21.9 Net Margin 20.2 15.9 15.9 15.9 16.4 ROCE 20.5 19.7 21.5 22.8 24.6 ROE 30.9 20.8 20.1 20.0 20.4 RoIC 23.6 21.7 24.2 26.3 29.0

Per Share Data (Rs) FY19 FY20 FY21E FY22E FY23E EPS 14.5 13.8 16.4 18.0 20.4 CEPS 22.1 17.4 18.4 20.1 22.6 BVPS 71.1 77.3 85.6 94.7 105.0 DPS 12.0 8.0 8.0 9.0 10.0

Valuations (x) FY19 FY20 FY21E FY22E FY23E PER 49.6 52.1 44.0 39.9 35.4 P/CEPS 30.1 38.4 36.2 33.1 29.5 P/BV 10.1 9.3 8.4 7.6 6.9 EV / Sales 7.4 7.7 7.2 6.4 5.8 EV / EBITDA 35.7 35.3 30.5 27.7 24.6 Dividend Yield (%) 1.7 1.1 1.1 1.2 1.4

Gearing Ratio (x) FY19 FY20 FY21E FY22E FY23E Net Debt/ Equity 0.3 0.3 0.1 0.1 0.0 Net Debt/EBIDTA 0.9 1.0 0.5 0.2 (0.1) Working Cap Cycle (days) (0.7) 3.3 (0.7) 2.3 3.2

Growth (%) FY19 FY20 FY21E FY22E FY23E Revenue 4.8 (3.9) 6.1 10.1 9.5 EBITDA 2.4 1.2 14.7 8.8 11.4 EBIT 1.9 (0.1) 15.6 9.4 12.0 PAT 43.3 (36.1) 11.8 10.2 12.9

Quarterly (Rs mn) Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Revenue 26,302 27,781 21,538 23,273 29,151 EBITDA 5,765 6,313 4,765 4,727 6,844 EBITDA Margin (%) 21.9 22.7 22.1 20.3 23.5 PAT 4,139 4,452 2,299 3,949 4,580 EPS (Rs) 4.0 4.4 2.2 3.9 4.5 Source: Company, Emkay Research

Shareholding Pattern (%) Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Promoters 63.2 63.2 63.2 63.2 63.2 FIIs 27.8 27.8 26.3 26.8 26.8 DIIs 2.3 2.2 3.1 3.2 3.1 Public and Others 6.7 6.8 7.3 6.8 6.9 Source: Capitaline

December 20, 2020 | 4 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

RECOMMENDATION HISTORY TABLE RECOMMENDATION HISTORY CHART Closing Period Date TP Rating Analyst Price (months) BUY Hold Sell Accumulate Reduce Price Target Price 05-Nov-20 669 700 12m Hold Ashit Desai 975 04-Aug-20 692 645 12m Hold Ashit Desai 866 13-May-20 534 600 12m Hold Ashit Desai 14-Apr-20 557 635 12m Hold Ashit Desai 757

08-Apr-20 600 635 12m Hold Ashit Desai 648 30-Jan-20 684 720 12m Hold Ashit Desai 539 25-Dec-19 691 700 12m Hold Ashit Desai 06-Nov-19 742 700 12m Hold Ashit Desai 430

20-Sep-19 685 650 12m Hold Ashit Desai

21-Jun-18 18-Jun-19 14-Jun-20

19-Dec-18 16-Dec-19 12-Dec-20 01-Aug-19 604 650 12m Hold Ashit Desai 22-Dec-17 03-May-19 641 730 12m Hold Ashit Desai Source: Bloomberg, Company, Emkay Research 09-Apr-19 665 760 12m Hold Ashit Desai 29-Jan-19 751 760 12m Hold Ashit Desai 02-Nov-18 714 800 12m Accumulate Ashit Desai 30-Jul-18 874 883 12m Accumulate Ashit Desai 08-May-18 749 787 12m Accumulate Ashit Desai

Source: Company, Emkay Research

December 20, 2020 | 5 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

Emkay Alpha Portfolio – Consumer Goods & Retail

EAP sector portfolio BSE200 EAP OW/UW OW/UW EAP Weight Company Name Weight Weight (%) (bps) (Normalised) Consumer Goods & Retail 11.64 11.64 0% 0 100.00 Asian Paints 1.52 0.64 -58% -88 5.51 Berger Paints 0.23 0.00 -100% -23 0.00 Britannia Industries 0.58 0.79 37% 21 6.77 Colgate-Palmolive 0.28 0.35 24% 7 3.00 Dabur India 0.38 0.42 12% 5 3.64 Emami 0.12 0.00 -100% -12 0.00 Godrej Consumer Products 0.36 0.00 -100% -36 0.00 Hindustan Unilever 2.72 2.38 -12% -33 20.48 ITC 2.44 2.66 9% 21 22.82 Marico 0.28 0.32 14% 4 2.73

Nestle India 0.86 0.69 -20% -17 5.90 Pidilite Industries 0.33 0.00 -100% -33 0.00 Analyst: Ashit Desai Radico Khaitan 0.00 0.31 NA 31 2.67 Contact Details United Breweries 0.10 0.52 405% 42 4.48 [email protected] United Spirits 0.00 0.40 NA 40 3.41 +91 22 6612 1340 Varun Beverages 0.12 0.28 126% 15 2.38 Sector ABFRL 0.07 0.27 292% 20 2.29 Consumer Goods & Retail Jubilant FoodWorks 0.23 0.24 7% 2 2.10 Analyst bio Page Industries 0.20 0.22 8% 2 1.89 Ashit Desai holds a PGDM and FRM (US Shoppers Stop 0.00 0.00 NA 0 0.00 GARP) with 12 years of research Titan Company 0.82 1.16 40% 33 9.93 experience on the sell side. His team Cash 0.00 0.00 NA 0 0.00 currently covers 24 stocks in the Indian Source: Emkay Research Consumer and Retail space. * Not under coverage: Equal Weight  High Conviction/Strong Over Weight  High Conviction/Strong Under Weight

Sector portfolio NAV Base Latest

1-Apr-19 19-Mar-20 18-Jun-20 17-Sep-20 17-Nov-20 17-Dec-20

EAP - Consumer Goods & Retail 100.0 85.5 100.1 105.4 108.9 119.8 BSE200 Neutral Weighted Portfolio (ETF) 100.0 81.6 93.5 100.3 104.6 115.4 *Performance measurement base date 1st April 2019 Source: Emkay Research

NAV chart NAV 125

115

105

75 Apr-19 Jun-19 Sep-19 Nov-19 Feb-20 Apr-20 Jul-20 Sep-20 Dec-20

EAP - Consumer Goods & Retail BSE200 Neutral Weighted Portfolio (ETF)

Source: Emkay Research

Please see our model portfolio (Emkay Alpha Portfolio): Nifty Please see our model portfolio (Emkay Alpha Portfolio): SMID “Emkay Alpha Portfolio – SMID and Nifty are a supporting document to the Emkay Alpha Portfolios Report and is updated on regular intervals”

December 20, 2020 | 6 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

Emkay Rating Distribution Ratings Expected Return within the next 12-18 months. BUY Over 15% HOLD Between -5% to 15% SELL Below -5%

Completed Date: 20 Dec 2020 18:14:37 (SGT) Dissemination Date: 20 Dec 2020 18:15:37 (SGT)

Sources for all charts and tables are Emkay Research unless otherwise specified.

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December 20, 2020 | 7 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

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1. EGFSL, its subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of December 20, 2020 2. EGFSL, and/or Research Analyst does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report Disclosure of previous investment recommendation produced: 3. EGFSL may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by EGFSL in the preceding 12 months. 4. EGFSL , its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have any material conflict of interest in the securities recommended in this report as of December 20, 2020. 5. EGFSL, its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the December 20, 2020 6. EGFSL, its subsidiaries and/or other affiliates and Research Analyst have not received any compensation in whatever form including compensation for investment banking or merchant banking or brokerage services or for products or services other than investment banking or merchant banking or brokerage services from securities recommended in this report (subject company) in the past 12 months. 7. EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst have not received any compensation or other benefits from securities recommended in this report (subject company) or third party in connection with the research report. 8. Securities recommended in this report (Subject Company) has not been client of EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst during twelve months preceding the December 20, 2020

December 20, 2020 | 8 Godrej Consumer Products (GCPL IN) India Equity Research | Company Update

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