Retain ‘buy’ on Godrej Consumer as results in line: Nomura

Godrej Consumer (GCPL’s) results were marginally below our expectations at the revenue level, in line with our expectations at the EBITDA level, and ahead of our estimates at the PAT level largely due to a lower-than-expected tax rate. While revenues were 0.4% below our expectations, PAT was 6% ahead of our estimate and Street expectations. As we expected, the volume growth trajectory has slowed, owing to the impact of the weak monsoons and uncertain rural demand. Domestic business volume growth slowed from 13% y-y in Q1FY16 to 9% y-y in Q2FY16. However, we maintain Buy on GCPL given that the numbers were in line with expectations and the long-term story is intact.

Consolidated business revenue grew 9.5% YoY to R2,240 crore as compared to our expectation of R2,250 crore and consensus of R2,270 crore. Domestic business branded organic revenues increased 10% y-y on the back of volume growth of 9%. The deflationary trend in pricing continued, visible in the narrowing of the gap between volume and value growth.

However, we believe this deflationary trend is nearing a bottom. EBITDA at R400 increased 23% y-y, in line with our/Street estimates and EBITDA margin at 18% expanded 190bps y-y, in line with our expectation and marginally ahead of Street estimates. The benefit of soft commodity prices is quite visible in the gross margin which expanded 500bps y-y, marginally ahead of our expectation of 400bp margin growth.