GCPL Witnesses Muted Growth In Dec 2012 Quarter

Godrej Consumer Products (GCPL) saw a stupendous growth in sales in its Dec 2012 quarter. The company came out with its financial result for the quarter ended Dec 2012, wherein its consolidated net sales stood at Rs 1691 crore growing by 26% on a yearly basis. The EBITDA, at consolidated levels, stands at Rs 285 crore up by 6% on a YoY basis and the EBITDA margins stood at 16.85% against 19.69%, seen last year in the same quarter witnessing a contraction of 311 basis points.

The Indian business witnessed a growth of 20% on the sales front on a YoY basis for Q3FY13. The EBITDA margins from this segment stand at 18.02% and the EBITDA grew by 7% on a YoY basis for Q3FY13. All the sub-segments like the Home Care (+28%), Personal Wash (+20%) and the Hair Care (+17%) segments have witnessed a healthy growth. On the International front, Asia (ex India) has witnessed a growth in topline of more than 30% for this quarter on a YoY basis.

The African business saw sales of Rs 226 crore with an EBITDA margin of 20%. A drop of around 1070 bps in the EBITDA margins was mainly due to the base effect. In the same quarter last year, the guided margins of 17% - 19% range were driven by a one-time low cost inventory benefit and seasonal format mix in the hair extension category. In the Latin American region, the sales stood at Rs 150 crore with the EBITDA margin at 8%. The sales growth is led by continuous marketing investments, new product launches, festive season and Chile business consolidation.

In Europe, the company witnessed a sales growth of more than 15%, with sales at Rs 50 crore in a tough environment, on account of innovation and brand investments. During the quarter, several new products launches got a strong marketing support. The EBITDA margin was seen at 5%.

The Net profit witnessed a growth of 3% on a YoY basis to stand at Rs 172 crore for Q3FY13. The flattish growth in the bottomline can be attributed to higher raw material costs and employee expenses which grew by 42.73% and 32.03% respectively on a YoY basis for Q3FY13. The raw material to sales grew by 201 basis points to stand at 43.87% for Q3FY13. At the current price, the stock is trading at a PE of 36.65x, which we believe is expensive. At this point, the stock has a limited scope of upside going forward.