>GODREJ CONSUMER PRODUCTS (MOTILAL OSWAL)

■ GCPL's 4QFY09 results above estimates: Net sales grew 26% YoY to Rs3.4b (v/s our estimate of Rs3.1b). Gross margin declined 850bp YoY to 49.1% (up 760bp QoQ). However, lower ad-spend (510bp) pushed EBITDA margin up to 19.3% (14.1% in 3QFY09) v/s our estimate of 18.3%. Adjusted PAT grew 45% YoY to Rs594m (v/s our estimate of Rs473m) on higher interest income and lower tax rate (290bp).

■ 34% volume growth in toilet soaps: Toilet soap volumes grew ~34% YoY (17% in 3QFY09), while realizations increased 12%; Godrej No 1 has been key growth driver. We believe competitive intensity could increase in the category, as the market leader HUL tries to regain market share.

■ Hair color sales reflect revival post multiple initiatives in 3QFY09: Hair care sales increased 20% (volume growth ~13%), as benefits of the trade push and price increases got reflected. In 3QFY09, the company had increased prices by 11%, of which 6-7% was passed on to the trade as additional margins. The management aims at increasing market share in Hair Color through new launches (in premium segment) and increasing its distribution reach.

■ Keyline and Rapidol sales de-grow; Kinky reports Rs23m loss during 4QFY09: Keyline (15% of consolidated sales) reported sales de-growth of 8% YoY to Rs435m and adjusted PAT growth of 6% YoY to Rs35m. Rapidol reported sales of Rs109m (down 3% YoY) and adjusted PAT of Rs17m. Kinky operations continued to disappoint, with net sales of Rs107m (v/s Rs407m in 9MFY09) and loss of Rs230m.

■ Revising EPS estimates by 14%; maintain Buy: The company plans to expand its distribution and exploit synergies with other FMCG companies of Godrej Group which will enable it to accelerate growth in coming years. The management is confident of margin expansion in 1HFY10 (low cost forward cover for palm oil) although international operations are likely to remain under pressure. We are revising our EPS estimates by 14% for FY10 and 11% for FY11 to factor in stronger volume growth. The stock trades at 17.5x FY10E EPS and 15.1xFY11E EPS. Buy.

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