Project Report CFA

Godrej Consumer
category
development
INITIATING COVERAGE , building
EQUITY brands and
improving
penetration,
rewiring
GTM, etc.
The CEO Factor Payoff may
take time but
Appointment of Sudhir as MD & looks more
CEO and Dharnesh as GAUM
cluster head reflects hunger to
sustainable.
work on missing pieces –
category development, Diagnosing
innovation and recalibrating GTM issues
GTM. Task is arduous but most of
concerns seem internal, hence international
fixable. Outcome of initial steps business (IB)
(e.g. rewiring distribution in GCPL’s IB
GAUM) are encouraging and as revenues
execution improves, albeit over FY17-21
gradually (turnaround in HI will posted 2%
take ~12 months), we expect CAGR. Poor
11%/13% revenue/EBITDA CAGR growth was
over FY21-25E vs 6%/8% over due to weak
FY16-21. This along with GTM model,
controlled capex (capital both in
employed CAGR of 10%) should GAUM
improve RoCE by ~1,300bps over (Godrej
FY21-25E. In the longer term, Africa, USA,
pivot into larger home care and Middle-East)
cross-pollination opportunities and
would provide growth longevity. Indonesia.
Risks: Delay in breakthrough Appointment
innovation in HI and macro- of new
economic concerns in cluster head
GAUM/Indonesia. with a core
KPI of re-
Competitive position: STRONG wiring GTM
(initial results
Changes to this position: STABLE encouraging,
exhibit 63)
Transitioning to a sustainable makes us
growth mindset believe
GCPL’s FY05-17 revenue CAGR growth
was led more by acquisitions trajectory for
(domestic + IB) than category IB can inch
development, premiumisation, back to ~12%
forays in adjacencies etc. With CAGR over
the new MD & CEO and
geography cluster head in place, FY21-25E.
aspiration to deliver double-digit
revenue growth remains but
would be led by focus on
Godrej Consumer
EBITDAM improvement led by Consumer

GAUM cluster Staples
GAUM margins dipped from 17%
in FY17 to 10% in FY21 led by Recommendati
high staff cost, limited operating on
leverage from new capex etc. Mcap (bn):
With most capex behind and
further possibility of cross- 6M ADV (mn):
pollination (set-up of global
category teams), we expect CMP:
GAUM cluster to post 14% TP (12 mths):
revenue CAGR over FY21-25E `848 Upside (%):
with ~450bps EBITDAM 24
expansion. India/Indonesia
sustaining EBITDAM of 26%/27% Flags
should improve GCPL’s overall Accounting:
EBITDAM by 110bps over FY21- GREEN
25E. Predictability:
AMBER
Better probability of financial
Earnings
outperformance
Momentum:
Strategic initiatives to strengthen
the core portfolio can yield 11%
revenue CAGR over FY21-25E vs Catalysts
11%/12% for Dabur/Marico for
whom growth hinges on TAM  After
expansion, seeding new clocking 1%
categories etc. Our DCF-based TP CAGR in
of `848 implies 35x FY24 P/E, a GAUM over
20% discount to relevant peers, FY19-21, we
expect 17%
which could be bridged as
CAGR over
strategy translates into financial FY21-23E.
outperformance.  Even 10bps

Key financials EBTDAM
expansion in
Year to March FY23 owing
FY21 FY22E to RM
FY24E pressure will
Operating income (` mn) still give
110,286 123,792 137,920 152,428 12% YoY
EBITDA (` mn) EBITDA
23,549 26,393 33,133 growth.
Adjusted PAT (` mn)
16,304 18,236 24,408
Adjusted EPS (`)
15.9 17.8 23.9 Performance
RoCE (%)
(%)
20.2% GCPL IN
22.1% SENSEX
P/E (x) 44.7 40.0 43.3 2
38.7 28.9 P/B (x) 8.9 0
7.5 6.7 6.0 5.3 0
Source: Company, Ambit Capital research
BUY 1
5
March 28, 2022 0
100
March 28, 2022 Ambit Capital Pvt. Ltd. Page 2

Godrej Consumer
5 n
0 a
m
0
a
n
t
.
Source: Bloomberg, Ambit Capital Research s
a
t
i
y
a
@
a
m
b
i
Research Analysts
t
Alok Shah, CFA
.
+91 22 6623
c
3259
o
alok.shah@ambi
t.co
Namant Satiya, CFA

+91 22 6623 3259
Ambit Capital and/or its affiliates do and seek to do business including investment
banking with companies covered in its research reports. As a result, investors should be
aware that Ambit Capital may have a conflict of interest that could affect the objectivity
of this report. All Investors including US Investors should not consider this report as the
only factor in making their investment decision. Please refer to the Disclaimers and
Disclosures at the end of this Report.
abhishek.ra
2022-03-28 Monday 10:00:10

Godrej Consumer
The Narrative in
Charts
Exhibit 1: 12% topline CAGR in the last decade was led by
double-digit domestic growth (till FY16) and acquisitions in
IB; EBITDAM expanded 294bps but goodwill and moderate
IB performance (post inorganic phase) led to RoCE
contraction
Exhibit 2: Domestic share fell till FY17 Exhibit 3: 2%/1%

revenue CAGR in HI & Exhibit 4: Share of GUAM in IB due
to IB acquisitions; FY21 domestic hair colours over FY16-21
led to share business kept inching up due to share
increased due to Covid tailwind declining within domestic
business acquisition

Godrej Consumer
Exhibit 5: Past growth strategies had gaps, seems to be
getting addressed basis the new management’s strategy
Growth Journey Business

(FY10-18)
•Acquisition led growth; •L

•Foray in new ca
geographies into •L
unrelated categories; in
• Margin focussed ; •L
•Innovation which were p
only incremental in a
nature p
Exhibit 6: Renewed strategy together with relevant

experience in the core management team builds
confidence on GCPL’s ability to turnaround performance
Years
Name Designation with
GCPL
Sudhir Sitapati Managing Director and CEO <1
Business Head -Africa, USA & Middle

East
Dharnesh Gordhon <2
Pivotin
chann
mix,
addres
compe
tive
pressu
s a
macro
Akhil Chandra Business Head - ASEAN
Source: Company, Ambit Capital research; Note: - Strong;

- Relatively Strong;
- Average; - Relatively weak
Exhibit 7: Expecting both domestic and IB to clock double dig

growth…

Godrej Consumer
Consol. revenue growth India revenue growth

IB revenue growth
15 %
12 %
11 % 11 %
12 % 11 % 11 %
9%
6% 5%
3%
0%
FY21
FY23E
FY22E
FY24E
FY16-21
CAGR
Source: Company, Ambit Capital research;
Exhibit 9: GCPL’s financial performance has been weak comp

relevant FMCG peers (clocked lowest FY17-21 revenue/EBIT
CAGR)
GCPL Dabur Marico

12 %
10 %
8%
6%
4%
2%
0%
Rev CAGR EBITDA CAGR PAT CAGR
Source: Company, Ambit Capital research;
60 x
Nestle
50 x
FY24 P/E
Dabur HU L
40 x Marico Tata
Consumer
30 x Britanni a
GCPL
20 x
10 % 15 % 20 % 25 % 3
PAT CAGR FY22-24E
Source: Ambit Capital research

Godrej Consumer
Domestic
business: Strategy
in place,
execution to
follow
GCPL’s
India
portfolio
comprises
highly
penetrate
d (soaps)
and
lowpenetr
ated (HI,
air care,
hair
colour)
categories
, requiring
efforts to
increase
penetratio
n and
market
size.
While
growth in
soaps has
been
strong
(10%
CAGR
over FY11-
21 with
share
gains),
category
developm
ent in low
penetrate
d
categories
has not
been
sufficient.
It is
heartenin
g to see
GCPL’s
board
appointin
g Sudhir
Sitapati as

Godrej Consumer
MD &
CEO, who
has
relevant
experienc
e in
seeding
brands/ca
tegories.
His
renewed
strategy
of
focusing
on
breakthro
ugh
innovatio
n, upping
category
developm
ent
through
increasing
ad
spends,
and
improving
efficiency
&
productivi
ty should
improve
growth
from mid-
single
digit
(FY17-21)
to low
double
digit (11%
domestic
revenue
CAGR
over FY21-
25E). In
HI, GCPL
will need
to address
product
efficacy
concerns
(successfu
lly done
over FY11-
15). In
soaps, it
will need
to

Godrej Consumer
maintain
status quo
in
seamlessl
y working
current
strategy.
In hair
colour, air
care and
other
smaller
portfolios,
focus on
category
developm
ent and
penetratio
n-led
growth if
required.
Exhibit 11: Share of India business has Exhibit 12: HI and

air care’s saliency at Exhibit 13: Sharper growth in
personal moved up by ~300bps over FY17 to 21 ~50% of
domestic business whereas care was aided by soaps &
hygiene soaps & hair colours at ~45% portfolio in the last
few quarters
FY21 Other
5%
India, Personal
55% care,
Internat ional, 46 %
45%

Capital research Source: Com
Household
insecticides –
Product
innovation and
brand spends
are a prudent
move
The HI
category
size in
India is
~`65bn,
which has
grown at

Godrej Consumer
6-7%
CAGR over
the last 5-
6 years.
Majority
(87%) of
the HI
market is
for
mosquitoe
s, with
liquid
vaporizer
(LV) and
coils
accountin
g for ~60%
of the
overall HI
market.
While
overall
category
penetratio
n is ~60%
+, major
sub-
categories
of LV and
coils have
penetratio
n of just
~25%/32%
(with
limited
overlap),
offering
scope to
expand
the
category
led by
increase in
penetratio
n.
Exhibit 14: LV and coils account for ~60% of the HI market
in India
Sub-category Size (` bn) Last 5y
Liquid vaporizer 23bn 3-4
Coils 15bn Flat t
Incense sticks 9bn 15-20

Aerosols 8bn 9-10
Others (burn papers, chalks, gels, personal 10bn
repellents etc.)
Overall HI 65bn
Source: Forbes India Article, Ambit Capital research

Godrej Consumer
Exhibit 15: GoodKnight is the market leader in both…
Exhibit 16: …LV and coils with >50% market share
Others
(Mortein, Liquid vaporizer local
players),
6%
Maxo, 9%
GoodKnight
All Out, , 55%
30 %
Source: Ambit Capital research; Note: Above are estimates basis

mgmt. Source: Ambit Capital research; Note: Above are estimates
basis mgmt. commentaries and interaction with experts
commentaries and interaction with experts
Innovation & ad spends drove industry-leading

growth
During
FY11-16,
GCPL’s HI
segment
grew at a
healthy
clip of
16% CAGR
on the
back of
high
media
investmen
ts,
increased
penetratio
n
(especially
LV) and
market
share
gains.
However,
post FY16
growth
largely
flattened
(2% CAGR
over FY16-
21) with
onslaught

Godrej Consumer
of illegal
incense
sticks and
possible
lower ad
spends by
GCPL.
Illegal
incense
sticks have
been
growing at
15-20%
CAGR
owing to
high
efficacy
and longer
life (vs
incumbent
s), quick
results
(drop
dead
instantly)
and lack of
consumer
awareness
regarding
their
harmful
effects on
health.
While the
governme
nt is trying
to tackle
these
incense
sticks
through
regulatory
curbs,
success
has been
low as the
incense
sticks
category
has
maintaine
d its
double-
digit
growth
trajectory.

Godrej Consumer
Exhibit 17: GCPL’s HI category posted mid-teen growth
Exhibit 18: Standalone ad spends (FY11-16) up 25%
CAGR over FY11-16 as the company pushed the pedal on
ad aided overall HI category growth; as ad spends
spends and threat from illegal insecticides was absent
decelerated, category growth too tapered drastically
HI Sales (LHS - Rs mn) YoY Growth %
30,000
2% CAGR
25,000
20,000
15,000
10,000
5,000
0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Capital research
Under the
new
managem
ent, GCPL
is banking
on
category
developm
ent
initiatives
to drive
penetratio
n-led
growth for
the HI
category.
To gauge
the
probabilit
y of
success,
we
analyze
the HI
category
across a
few
parameter
s:
 Category
relevance
&
consumer
behavior
– Use

Godrej Consumer
case
prevails
but GCPL
needs to
undertak
e
stronger
messagin
g
HI
category
would
remain
relevant
as
mosquito-
borne
diseases
like
malaria
and
dengue
continue
to plague
India. As
disposable
income
and
standard
of living
improve,
basis
global
playbook
(refer
below
exhibit),
more
consumer
s should
get
recruited
into the HI
category.

Godrej Consumer
Exhibit 19: India has one of the lowest per capita HI spends, signifying growth potential; as GDP per in the last decade, only a few have
capita increases, HI category spends should move up met with success. This is because most
of the innovation has been
incremental rather than
breakthrough. Amongst the recent
launches (i) Gold flash has been
successful due to higher efficacy: (ii)
Neem
Amb
Ltd.
To correct this consumer behavior
change from being reactive to
proactive, category participants will
need to significantly invest behind
relevance, improve efficacy and
undertake product innovation.
Source: Company
However, one of the challenges of the HI category is the reactive nature of consumers and trust
on the efficacy of HI products. This limits the usage of HI products and brings seasonality to the
category, i.e. higher usage during monsoon when mosquito incidence is high. 2Q and 3Q
account for 55-60% of annual HI sales for GCPL. Changing consumer behavior from reactive to
proactive is required but not easy.
 Affordability – GCPL to bring perception change of LV being higher price product vs coils
Coil as a format has higher saliency in rural (50-60% penetration) than LV as people tend to
sleep outdoors, electrification issues (though this issue is largely behind) and lower prices of coil
vs LV. While optically coil seems to be more affordable compared to LV (high upfront
investment), on a cost per night basis, LV is priced at par if not cheaper (refer below exhibit).
Hence, higher awareness regarding LV affordability is needed.
Exhibit 20: LV is cheaper than coil on a costs/night basis
Product Pack size Price (`) `/night Comments
GoodKnight Neem 180 1.5 Assuming only 1 agarbatti used per night (1
Pack of 120 agarbatti lasts for 3 hours)
Agarbatti
GoodKnight Coil 36 3.6 Assuming 1 coil per night (coil lasts for 10-12 hours)
Pack of 10
Activ+
Assuming 1 refill pack works for a month (810
GoodKnight Gold
95 3.2 hours use/night). Every additional refill costs `77
Machine + 1 refill Flash
(i.e. `2.6/night)
Source: Company, Ambit Capital research; Note – We have considered MRP while calculating the `/night
abhishek.raichura@ambit.co 2022-03-28 Monday 10:00:10

To address this, GCPL had initially launched ‘fast card’ and now has upgraded to ‘jumbo fast Page 6
card’. The erstwhile fast card had certain deficiencies such as limited burning time (lower
agarbatti (launched to tackle incense
efficacy) and was not suitable to burn in certain locations (light weight with tendency to fly).
sticks) did not do well despite its
With the jumbo fast card, these issues have been addressed. It is now up to GCPL to improve
natural proposition due to low efficacy
marketing and distribution to achieve better traction for its recently launched jumbo fast card
and (iii) jumbo fast card (upgraded
range.
version of fast card) was launched to
 Innovation – A must to improve product efficacy solve the dual problem of incense
sticks and low HI rural penetration –
GCPL being the market leader in HI has the responsibility of category innovation. We success could be seen depending on
understand that peers (Jyothy Labs, S.C. Johnson, RB) have made limited investments in execution.
R&D/innovation for category growth. While GCPL has launched a product every alternate year
March 28, 2022

Godrej Consumer
Going forward, as per the new management’s strategy, GCPL will focus on fewer launches but suggests 50-55% GM (refer below
more breakthrough innovation, which we believe is the right strategy. This also means, until a exhibit) for the LV category. Basis
new breakthrough product is launched, expecting a sustained double-digit growth in HI would channel checks, we understand that
be too optimistic. margins in burning formats such as
coils are much lower due to higher
Another critical thing to note in product innovation is that the main active ingredient for LV
trade margins, hence the efforts from
products is manufactured by a single chemical company and all Indian LV players source from
companies to upgrade consumers
that company. Thus, GCPL’s ability to differentiate the product solely basis the ingredient may
from coil to LV. While GCPL is focusing
be limited. This potentially means GCPL’s breakthrough innovation would be a function of
on LV as a format, increase in sales of
innovation in the external device of LV vs solely on the liquid.
its refill packs is critical for improving
Exhibit 21: GoodKnight has led innovation in the HI category GM. It is critical to ensure that
competing brands’ refill packs do not
fit in GCPL’s LV device.
Exhibit 22: S.C. Johnson India operates at
50-57% GM; All Out has ~30% market
share in LV and accounts for ~80-85% of
S.C. Johnson’s topline
` mn FY16 F
Sales 7,149 6
Growth % 5.1% -7
Gross Profit 4,063 3,

GM % 57%
Considering the sourcing of active for

Source: Forbes India Articl e, Ambit Capital research LV (dependent on single global
chemical company), regulatory
approvals and cost involved,
 Profitability – GCPL’s right mindset to focus on LV competition has refrained from
innovation. GCPL with its leadership
Basis our estimates and interaction with experts, most of the HI category’s profit pool lies in the and R&D capabilities seemed better
LV segment. Within LV, too, refill packs are the most profitable (~60% GM) while machines are poised to launch a breakthrough
priced cheap to recruit consumers (effective price `18-20) and hence low margins (<20% GM). innovative product.
Analysis of S.C. Johnson (~30% market share in LV), which derives ~80-85% of revenue from LV,
EBITDA
EBITDA % 6% 6% 6% 8% 13 % 426 405 400
504 754
Source: Ace Equity, Ambit Capital research; Note: Standalone financials for S.C. Johnson India
Exhibit 23: GCPL’s coil pricing is in line with competition; Exhibit 24: Limited avenue to price refill packs higher important in coil is to ensure higher
trade schemes than competition since it can usually be re-engineered
Pack Price Pack Price Price/
Product Product
size ( in ` .) size ( in ` ) refill
GoodKnight Maha Jumbo Coil 10 34 GoodKnight Gold Flash refill 4 316 79
Mortein PowerBooster Coil 10 34 Good Knight Power
6 365 61
Activ+
Maxo A grade Coil 10 33
All Out refill 6 390 65
Maxo refill 4 280 70
Mortein refill 4+2 promo 288 48
 Non-mosquito & personal repellent portfolio – Optionalities that GCPL can seek to achieve
While the mosquito portfolio forms the majority (~87%) of the HI category in India, the non-
mosquito portfolio (especially for roaches) and personal repellents also offer a significant
opportunity. Roaches are a common issue in Indian households (implying sizable TAM) and
products like aerosol have proved to be an effective solution. However, aerosol penetration is
still less than 5% (with HIT having ~90%+ market share) in India due to affordability and
Godrej Consumer
inconsistency of usage/need issues. While the category has huge potential, more innovation is
needed to make the price points more affordable to attract mass consumers. Personal Insect
Repellents (PIR) in India is still very nascent (~`1.8bn) with Dabur dominating the category
through Odomos (~80% market share). GCPL had launched a natural roll-on for kids but
achieved limited success due to low efficacy and limited parents concern on applying it on a
child’s body. While PIR has potential to become sizable, growing this category in India will
require much more investment in creating awareness and innovation.
Exhibit 25: Mosquito products form the majority of the HI market in India
Non-Mosquito
(majorly roaches), 13%
Mosquito , 87%
Source: Forbes India Article, Ambit Capital research
Penetration increase hinges on innovation and higher ad spend

We read the above category nuances with management’s focus on category development,
increasing ad spends and focusing on innovation, especially in LV. We believe this is an apt
strategy but also recognize that for the HI portfolio to revert to double-digit growth will take
time. So an immediate turnaround would be overly optimistic. Basis our interaction with
category experts, GCPL is likely to file for approval of a new product with the regulatory body
soon.
Exhibit 26: Innovation + higher ad spends + growth in adjacencies = Scope for penetration increase, category expansion and GCPL’s potential to gain
share
•While focussing • GCPL will need to

on LVs, GCPL increase ad
should also look spends to
to scale up its promote the
adjacencies such category
as aerosols, relevance and use
personall case
repellant, etc Category
Adjacencies
relevance
Affordability
Improve
and
efficacy
distribution
•Believe product •Consumer's
affordability and perception on
distribution is not product efficacy is
an issue; there low; this needs to
will be takers for change through
efficacious breakthrough
product innovation

Godrej Consumer
Soaps – Sustaining the momentum

Indian bar soaps category (market size of ~`230bn) is highly penetrated (~95%) and has been
growing at 5-6% CAGR since 2015. While Wipro’s Santoor is the single largest brand, HUL
continues to dominate this category (~34% market share) through 4-5 brands despite witnessing
~450bps market share loss since 2015. HUL’s market share loss can be attributed to higher
demand for naturals soaps (Wipro and Patanjali benefitted), lower focus on some smaller
brands (Liril, Lifebuoy, etc) and increased competitive intensity.
Journey so far…
GCPL’s soap portfolio has grown faster than the market (refer below exhibits) over the last
decade, leading to market share gains (40-50bps since 2016 as per Euromonitor and ~300bps as
per management commentary). GCPL’s share gains are an outcome of improved distribution,
product consistency with clear consumer proposition, price-value equation and micro marketing
strategy.
Exhibit 27: Over the last decade GCPL’s bar soap has Exhibit 28: …compared to 9% CAGR for the overall bar grown at 10% CAGR… soap market
GCPL Soap Sales
25,000
Bar Soap Market size
250
20,000
200
` . mn
15,000
150
` . bn
10,000
100
5,000
50
0
FY11 FY16 FY21
0
FY11 FY16 FY21
Source: Company, Ambit Capital research Source: Euromonitor International Limited 2021 © All rights reserved, Ambit
Capital research; Euromonitor data is given in CY terms which has been converted
into FY terms

Godrej Consumer
Exhibit 29: Wipro, Reckitt, GCPL and Patanjali have gained market share at the cost of HUL; HUL has lost Source: Ambit Capital research; Note – Grade 1
320bps market share in bar soaps since 2016 (TFM => 76%), Grade 2 (TFM 70% to 76%), Grade
3 (TFM 60% to 70%); TFM content for Pears and
market
Brand Company 2016 2017 2018 2019 2020 Dove is not available since its categorization is
share change
different
Santoor Wipro Consumer 10.0% 10.7% 11.4% 11.9% 11.7% 168bps
Lifebuoy HUL 13.4% 13.1% 12.2% 11.2% 11.0% -245bps Where will the ship pivot now?
Lux HUL 12.5% 12.2% 11.3% 10.4% 10.2% -236bps
Soaps has done well for GCPL. But
Dettol Reckitt Benckiser 7.7% 8.4% 9.1% 9.2% 9.4% 171bps
with 95%+ category penetration, we
Godrej No 1 GCPL 7.5% 7.5% 7.6% 7.7% 7.7% 27bps
believe growth may get restricted at
Dove HUL 5.1% 5.2% 5.5% 5.9% 6.0% 89bps
6-7% (vs 10% CAGR over the last
Pears HUL 3.8% 3.9% 4.1% 4.3% 4.5% 65bps decade) after a few years. With two
Cinthol GCPL 3.7% 3.6% 3.6% 3.7% 3.7% 6bps well-known brands in the soaps
Patanjali Patanjali 3.1% 3.2% 3.1% 3.0% 2.9% -18bps category, the question is – will GCPL
Vivel ITC 2.5% 2.5% 2.5% 2.5% 2.5% -3bps look to tap into the premium soap
Hamam HUL 2.2% 2.2% 2.2% 2.2% 2.3% 7bps category, either bar soaps or liquid
Source: Euromonitor International Limited 2021 © All rights reserved, Ambit Capital research body washes, or look to explore
Godrej No.1 commands ~8% market share in the bar soap market and is the leader in north adjacencies within largely personal
India with strong presence in Punjab, Haryana, Himachal Pradesh and Uttaranchal. Godrej No.1 care category? While at this point in
has held fort over the years despite increased competitive intensity due to several initiative’s time management has not guided for
taken over the years - (i) ad spends much lower (12% of sales which allows GCPL to plough back that, at an opportune time we believe
savings into promo packs (pioneer in this) and offer better price value proposition (Grade 1 management will likely pivot the ship
soap - refer exhibit 30); (ii) introducing soap variants as per the needs of the regional markets into expanding TAM. Thus, currently,
earlier than competitors (aloe and lime variants in North India); (iii) micro-marketing initiatives beyond FY25E, we are building ~7%
to focus on specific markets (e.g. higher lime variant in say Punjab state vs other north Indian revenue growth for the soaps
states etc). segment.
Cinthol has a strong presence in south India (particularly Tamil Nadu and Andhra Pradesh) with Share gains in bar soaps are
commendable, while maintaining this
~4% market share pan-India. Cinthol has kept its original variant largely unchanged since
momentum will like to hear
launch. In south India, Cinthol Original is considered a medicated soap and is recommended by
management’s strategy of slowly
dermatologists/doctors for skin problems, which leads to higher trust amongst consumers.
pivoting to premiumisation and
Exhibit 30: Godrej No.1 offers the best price-value proposition vs competitors in the mass/economy adjacencies.
segment
70 Soap Pricing
Grade
60 1
50
Grade Grade
` ./100gm
40 Grade
Grade 2 1
Grade 2
30 1 3
20
10
0
Lux
Pears
Dove
Lifebuo
Santoor
Nivea
Godrej
Cinthol
No.1
March 28, 2022

Godrej Consumer
GCPL attempted to disrupt the handwash category through the launch of Mr. Magic, the
powder to liquid handwash, in 2018. Despite its value proposition (`6-7/100ml vs `12-13/100ml
for regular handwash) we understand that the product has not gained desired consumer
traction as Mr Magic is more watery vs thicker versions of competing hand washes (Dettol,
Lifebuoy etc) and is less scented. In order to expand TAM into male grooming, GCPL in 2018
attempted to launch a range of male grooming under brand Cinthol. However, considering
inconsistent brand investment and consumer resonance, management has put that on the
backburner for now. Hence, at this point we are not building any growth from those
optionalities.
Hair colour – Post-Covid recovery & penetration growth

Ambit Capital Pvt. Ltd. Page 11
abhishek.raichura@ambit.co 2022-03-28 Monday
10:00:10
GCPL can revert to double-digit category growth
The hair colour category in India is divided into two major segments – retail/nonprofessional
segment (`35-40bn) and professional/salon segment (`7-8bn). Hair colour penetration in India is
35-40%, while penetration for the crème based format is much lower. GCPL is the leader in the
retail segment through Godrej Expert (powder, 45% saliency and crème, 35% saliency) and
Godrej Nupur (Henna-based), while in the salon segment it has a very small presence through
Godrej Professional. GCPL’s performance in hair colour over the last decade has been a mixed
bag. During FY11-16, GCPL clocked mid-teen CAGR on the back of increase in penetration,
distribution expansion, upgradation from powder to crème-based format (first to launch crème
hair colour in sachet in FY13) and market share gains. Growth slowed down considerably from
FY16-19 (4% CAGR) partly owing to demonetisation and GST-related disruptions and slow
growth in the powder segment. FY20 and FY21 saw a decline (vs FY19) due to Covid’s impact on
discretionary categories. But as per management, the FY22 performance is on track to touch
pre-Covid levels.

Godrej Consumer
Exhibit 33: Hair colour grew in double digits during the first half of the decade, but was flattish in the second
half
Hair colours (RHS - Rs.mn) YoY Growth

8,000 35 %
7,000 30 %
Covid impact
6,000 25 %
20 %
5,000
15 %
4,000
10 %
3,000
5%
2,000 0%
1,000 -5 %
0 -10 %
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Ambit Capital research; Company
Withstanding competition through innovation and sharp pricing

More than 70% of the retail hair colour category sales come from <`50 packs. Godrej Expert,
Garnier, Streak, Indica and Super Vasmol are the major players in India. GCPL’s products
straddle price points (refer below exhibit) through Nupur (`10/sachet) at the bottom and Expert
Fashion (`40/sachet) at the top end. Streak and Indica compete at more or less similar price
points with GCPL, while Garnier is a premium brand (20-30% premium to competitors). In FY19,
GCPL had launched shampoo-based hair colour (at `25/sachet) given strong growth in this
category due to its convenience and quick application. While GCPL is not the leader in
shampoobased hair colour, it has been growing well in double digits and should become a
sizable portion of its hair colour portfolio.
Exhibit 34: GCPL’s products straddle price points Exhibit 35: All brands compete at the same price points in shampoo hair colour except
Garnier
Product Company ` /sachet Product Company ` /sachet
Godrej Nupur Henna GCPL 10 Godrej Expert Shampoo
GCPL 25
Godrej Expert GCPL 25 Hair colour
Indica Shampoo Hair
Hygienic Research CavinKare 25
Streax Hair Colour Black 30 Colour
Institute
Streak Insta Shampoo Hygienic Research
Indica Crème Hair Colour CavinKare 30 25
Hair Colour Institute
Godrej Expert Rich Crème GCPL 33 Garnier Men Shampoo Colour L'Oréal 39
Garnier Black Naturals L'Oréal 39 Source: Amazon, Ambit Capital research
Godrej Expert Rich Crème
GCPL 40
Fashion Range
Garnier Colour Naturals
L'Oréal 49
Crème Riche
Source: Amazon, Ambit Capital research
How competition clocked accelerated growth vs GCPL

GCPL’s hair colour segment revenue growth has underperformed Super Vasmol and Streax
(owned by Hygienic Research Institute, HRI) over FY16-20 (refer below exhibit). Vasmol is an oil-
based natural/herbal hair colour brand with mass appeal (60-70% contribution to HRI’s sales)
whereas Streak (15-20% of HRI’s sales) is a crème-based hair dye. Majority of HRI’s growth
seems to be from Vasmol, which has benefitted due to shift towards herbal products,
affordable pricing and good distribution channel in rural and Tier 2/3 cities. Streax (~20%
contribution to HRI’s sales) has also grown well due to the launch of Shampoo-based hair colour
(#2 player). We believe GCPL’s underperformance is owing to: (i) slowdown in powder-based
hair colour category; (ii) lower contribution from rural (<30% sales); (iii) poor scale-up of Nupur
March 28, 2022

Godrej Consumer
(value brand that serves as an entry point for mass consumers). What may be required is higher
marketing spends, improving consumer awareness on product efficacy, ease of use etc, which
can improve probability of repeat purchase.

Godrej Consumer
Exhibit 36: Super Vasmol and Streak grew at 10% CAGR… Exhibit 37: …vs just 1% CAGR for GCPL over FY16-20
Hygienic Research Institute GCPL - Hair Colour

` mn
(Super Vasmol & Streax) 7,500

6,000
5,000 6,000
4,000 4,500
` mn
3,000
3,000
2,000
1,500
1,000
0 0
FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20
Source: Company, Ambit Capital research; Source: Company, Ambit Capital research;
With Covid seeming to be largely behind and normalization of outdoor activities, we expect the
hair colour category to resume its growth journey. GCPL’s strategy of category development,
launch of new products and consumer upgradation from powder to crème-based formats should
aid growth.
Optionalities exist in small niche portfolios

Other brands mainly consist of Aer (air care), Ezee (laundry care) and Protekt/ProClean (home
and personal hygiene range). These brands together have grown at 18% CAGR over the last five
years, outpacing overall consolidated growth albeit on a small base. Amongst the other brands,
we are excited about the air care category considering low penetration and double-digit
category growth. GCPL has been growing in double digits and gaining market share (#2 player) in
the air care category (through room fresheners and air pockets for bathroom). This should
continue considering management’s renewed focus on this category, increasing distribution and
ability to cross-pollinate from Indonesia business (where GCPL is the leader). On Ezee, we
remain positive on the core product of winter wear liquid detergent but remain skeptical on
scale-up of recently launched liquid detergent and fabric conditioner for regular clothes
considering competition from behemoths (Surf Excel, Ariel etc). Finally, the entire hygiene range
launched in FY21 under Protekt and Pro-Clean brands had done well initially due to tailwinds
from Covid but growth has faded now. Based on our channel checks, product availability is low
and sales team focus on this category has reduced, which is in line with management’s
commentary of focusing only on core categories.
Exhibit 38: Other brands have grown at high-teen CAGR over FY16-21
Other brands
10,000
9,000
8,000
7,000
6,000
` . mn
5,000
4,000
3,000
2,000
1,000
0
FY16 FY17 FY18 FY19 FY20 FY21
Source: Ambit Capital research;

Godrej Consumer
Exhibit 39: Amongst the optionalities listed below, air care has the highest probability of success
Category growth Focus Compe- Probability of
Brand Category Products tition success
(2015-2020) level
Sachet, automatic spray machine (matic), spray, gels for
Aer Air care 10-11% High Med
home and car
Known for winter wear liquid detergent; Recently launched Overall laundry
Ezee Laundry care Mid High
Liquid detergent & fabric conditioner for regular clothes Care: 4-5%
Toilet/Surface care:
Protekt & Home & Personal Handwash, disinfectant spray, dish wash, floor and toilet
11-12% Low High
ProClean care cleaners, etc.
Dishwash: 7-8%
Source: Company, Ambit Capital research Note: - Strong; - Relatively Strong; - Average; - Relatively weak
Exhibit 40: Visual representation of product repertoire in optionalities
Exhibit 41: Basis below framework, GCPL has higher probability of success in HI, soaps and air care
FY16-21
Probability of
Category revenue Past growth concerns How are they being addressed Competitive reaction What more can be done
success
CAGR
Limited thrust on Increase ad spends & branding; aspire to Largely operates as a Focus on personal repellent
HI 2% innovation, lower brand launch limited but relevant breakthrough challenger brand & deepen focus in aerosol
spends product Expanding share in range
No efforts made premium range where
Current focus is not on Premiumisation,
Soaps 4% towards premium GCPL is not competing
premiumisation /adjacencies adjacencies in overall
range and
Main competitor grooming segment
adjacencies
Limited initiatives Category development efforts to improve largely present in Expand hair oil-based hair
Hair colour 1% towards category penetration and drive sustainable revenue Urban, rest colour and natural hair
development growth fragmented play colour range at
Category development efforts to multiple price point
White spaces still improve penetration and drive Limited competition Improve product range,
Others
20% remain in air care sustainable revenue growth straddle across price points
(Air care, etc)
Source: Company, Ambit Capital research Note: - Strong; - Relatively Strong; - Average; - Relatively weak

Godrej Consumer
IB improving, wait for a turnaround!

GCPL’s aspiration to go global paved way for consolidated revenue CAGR of 20% (FY05-21) but
also led to balance sheet growth of 37% CAGR and RoCE dip from 165% to 20%. GAUM
presence is in large TAM (USD3bn) and likely to grow at 15%, but growth was constrained
owing to inefficient GTM approach. To address this, in FY20, GCPL appointed Dharnesh
(exhibits 60, 61) with the core KPI to address GTM. This appointment along with initial steps
executed (refer exhibits 62, 63) are positive since GCPL is looking to diagnose the core
problem. In Indonesia, macro challenges apart, GCPL’s 4% FY16-21 revenue CAGR is
disappointing. Foray into coil market (40% of HI which was earlier a white space) and re-
staging channel mix (improving presence in fast growing GT/convenience stores) are seeds of
change. With improving chances of success in both these geographies (saliency of 85-90% of IB
revenues), we estimate 12% revenue CAGR over FY21-25E for GCPL’s IB segment.
Story thus far…

In line with GCPL’s 3*3 strategy (presence in three core categories in three strategic continents), it expanded
its international business inorganically (refer below exhibit).
Exhibit 42: Most of the power brands have potential to grow at high single digit to low double digit levels
Company acquired Acquisition cost (`

Year Country Market position
mn)
2005 Keyline UK Hair care and skin care products (Link) 1,300
2006 Rapidol South Africa Leader in ethnic hair colour (Link) 500
2008 Kinky South Africa Manufacturer of hair accessories (Link) 1,320
2010 Tura Nigeria Manufactures soaps and skin creams (Link) 1,600-2,000
2010 Megasari Indonesia
2010 Issue Latin America Hair care products (Lin k )
2 ,000
2010 Argencos Argentina Leader in hair sprays, focused on hair colour (Lin k )
2011 &
Darling * Pan-Africa Leader in hair extensions (Lin k) >10,000
2014
2012 Cosmetica Nacionale Chile Leader in hair colour (Lin k ) 2 ,000
2015 Frika South Africa Manufacturer of premium hair extension ( Lin k ) Not disclosed
2016 Canon Chemicals Kenya Manufactures and distributes personal and home care products (Lin k ) Not disclosed
2016 Strength of Nature USA Leader in ethnic hair care (Lin k) Not disclosed
Leader in baby wipes and No.2 in household insecticides (Link) 1,000-1,200
Source: Company, Ambit Capital research; Note – Acquisition of Darling brand was done in tranches; while bought first tranche of 51%, consideration was `5bn; Consideration
of ` 2,000mn towards Cosmetica Nacionale is towards 60% stake
These acquisitions led to increasing share of international business revenues from NIL in FY05 to
44% as at FY21 (reached ~50% in FY17). Within international business, as also reflected in
number of acquisitions, share of GAUM (Africa, USA and Middle
East) is the highest at 51% followed by Indonesia at 36% and LATAM & others at 13%.

Godrej Consumer
Exhibit 43: 12 acquisitions between FY06-17 led to Exhibit 44: Revenue share of GAUM is the highest followed by
increasing share of IB Indonesia, however…
10:00:10
Share of International business revenues
% share
50 % Others,
13 %
40 %
Indonesia,
30 % 36 %
20 %
10 %
0%
FY05 FY07 FY09 FY12 FY16 FY19 FY21 GAUM,
51 %
Source: Company, Ambit Capital research Source: Company, Ambit Capital research
Exhibit 46: …despite capital employed remaining at ~64% over the last
Exhibit 45: …GAUM’s share of EBITDA has consistently been reducing… few years
Indonesia GAUM Others Indonesia GAUM Others

100 % 100 %
80 % 43 % 80 %
30 %
43 %
60 % 60 % 66 % 64 %
64 %
40 % 40 %
59 % 60 %
20 % 44 % 20 %
25 % 24 % 25 %
0% 0%
Strategy of becoming an Indian MNC in emerging markets sounds exciting. But in the context of
operating challenges, geopolitical risks, inherent macro-economic challenges etc. it is not easy to
make it returns-accretive.
March 28, 2022

Godrej Consumer
Exhibit 49: Standalone RoCE is in the 35-40% band; decline in CE turnover in IB led to moderating IB RoCE, which pulled
down overall RoCE
RoCE - IB RoCE - Consol CE turnover - IB

75 % 1.5
60 % 1.2
45 % 0.9
)
30 % 0.6 (x
15 % 0.3
0% 0.0
Source: Company, Ambit Capital research; Note – Balance sheet for IB has been built basis difference between Consol and Std;
RoCE is calculate as EBIT*(1-t) / Capital employed less Cash and equivalents
Exhibit 50: GAUM’s share of EBITDA has consistently been Exhibit 51: …despite capital employed remaining at reducing… ~64% over the last few
years
Indonesia GAUM Others Indonesia GAUM Others

100 % 100 %
80 % 43 % 80 %
30 %
43 %
60 % 60 % 66 % 64 %
64 %
40 % 40 %
59 % 60 %
20 % 44 % 20 %
25 % 24 % 25 %
0% 0%
Product basket across geographies

Godrej Consumer
For GCPL, India product basket is similar to Indonesia in terms of categories whereas is different
vis-à-vis GAUM and LATAM.
Exhibit 52: Limited cross pollination opportunities within GCPL’s different geographical
portfolios
GAUM Indonesia LATAM India
Ethnic hair colour, Hair extension, Household insecticides Household insecticides
Hair care & maintenance (89%) (35%) Hair colour (40%)
Personal care (4%) Air care (24%) Hair styling products Personal care (32%)
Others (6%) Others (26%) Hair fixing sprays Hair care (10%)
Personal care (13%) Depilatory products Air care (4%)
Others (14%)
GAUM – Time to showcase execution prowess

GCPL’s expansion in GAUM has been through the inorganic route. As shown in above exhibit,
~90% of the revenue comes from hair care products.
Exhibit 53: Key brands for GUAM market
Brands Category/Description
Darling Hair extension in sub-Sahara Africa
TCB Naturals Hair care
MegaGrowth Hair strengthening & care range
Just for Me Natural ingredients-based hair care for kids
African Pride Hair care and moisturizer
Inecto Hair colour range in SA
Renew Hair colour and nourishment
Good Knight Recently launched first HI product – power shots
Exhibit 54: As inorganic acquisitions ebbed, revenue CAGR Exhibit 55: …which coupled with EBITDA margin moderated to mid-single digit…
compression lead to RoCE dilution
Revenue Revenue growth EBITDAM RoCE

7%
30,000 60 %
6%
25,000 45 % 5%
20,000
` bn
30 % 4%
15,000 3%
15 %
10,000 2%
5,000 0%
1%
0 -15 % 0%
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company, Ambit Capital research Source: Company, Ambit Capital research; Note – Calculated using
segmental data
While management does not disclose revenue contribution from each brand, we believe Darling
brands is the largest with ~50% of GAUM’s revenue. Hence, it would be crucial to understand
the hair extension market in Africa and USA. As per reports, global hair wigs, weaves and
extension market is USD6bn and is likely to grow at ~15% CAGR to reach USD13bn by 2026.
Growth of hair extension market is expected to be high owing to: (i) inherent fragility and
coarseness of hair of African origin population; (ii) increasing hair fall rate; (iii) increasing income
profile of middle income consumers; (iv) urban community looking for image makeover, etc.

Godrej Consumer
Exhibit 56: GCPL is present in the large ~USD3bn hair extension market in USA and Africa
Global hair extension Global hair extension

market - USD6bn market - USD6bn
Africa hair Synthethic hair -

extension market 45 %
- USD2bn
(approx) Human hair -
40 %
USA hair
extension market Animal hair -
- USD1bn 15 %
(approx)
Source: Company, ResearchandMarkets, Ambit Capital research

While GCPL’s Darling brand is the market leader in the hair extension category, its market share
is low. Apart from Darling, other key players are Great Lengths (Italy), Evergreen products (HK),
Rebecca Hair products (China), Aderans (Japan) and a few other Chinese and local players.
Competitive intensity in this category has remained strong, especially from Chinese and regional
players. Two listed players which also have presence in similar categories as those of GCPL’s
Darling have reported divergent sales growth over the last six years. Thus, while the market
opportunity prevails, translating that to sustainable double-digit revenue growth seems tough.
This is owing to unstructured distribution system in a larger part of Africa and prevalence of
competition from regional/local and Chinese players.
Exhibit 57: With Evergreen products’ higher exposure to Exhibit 58: …vs Rebecca hair products which has barely USA, it has been able to clock ~9%
sales CAGR… clocked ~4% revenue CAGR in Africa
Revenues Revenue growth
Africa revenues Africa revenue growth
1,000 15 %
1,000 25 %
800 12 %
900 10 %
In mns, HK$
600 9%
In mns, CNY
800 -5 %
400 6%
700 -20 %
200 3%
600 -35 %
0 0%
2014 2015 2016 2017 2018 2019 2020 500 -50 %
2014 2015 2016 2017 2018 2019 2020
Source: World Bank, Ambit Capital research Source: World Bank, Ambit Capital research
Distribution maze
Informal retail is dominant across sub-Saharan Africa. As per reports, informal retailers sell 80%
of fast-moving consumer goods (FMCG) to African households. According to the United Nations
Economic Commission for Africa (UNECA), 90% of retail transactions in Africa happen through
informal channels. These informal transactions account for 70% of retail transactions in Kenya,
96% in Ghana, and 98% in Nigeria and Cameroon. Despite informal retail’s importance in driving
scale, it is uncoordinated, fragmented, and unstructured. Multiple players exist in retail supply
chains – manufacturers, distributors, sub-distributors, logistics providers, and retailers (refer
below exhibit) – but they operate in silos. Distribution networks are costly to build. With deep
pockets, large FMCG companies such as Coca-Cola, Unilever, and Nestle, have invested heavily
but still account for only 30% of volumes through their own network whereas the remaining

Godrej Consumer
70% works through the sub-distributors network. These hold true largely for African markets ex-
South Africa where the saliency of e-com, MT and super markets is high.
Exhibit 59: Multiple layers in the FMCG distribution lead to disconnect between buyers and manufacturers, restricting brands to have visibility on end-
consumer demand
Source: Techcabal, Ambit Capital research FY19 •Ramping go-to-

mar
Thus, despite its leadership position, inability to adapt to the local distribution ecosystem and ket
rising competition slowed GCPL’s revenue momentum in the GAUM cluster. In order to address effo
the distribution problem, GCPL appointed a South Africaborn CEO for its GAUM business, rts
Dharnesh Gordhon. His profile shows that Dharnesh comes with a rich industry, marketing and acro
consumer experience in the African market. ss
Afri
ca.
Exp
Can Dharnesh use his magic wand? andi
ng
In order to conclude that, it would be critical to note what was the missing piece in GCPL’s cov
GAUM strategy which Dharnesh needs to address (refer below exhibit). erag
e of
Exhibit 60: In the post-acquisition era, GCPL’s strategies were more focused towards brand building,
sate
innovation and digital marketing vs beefing GTM strategy llite
mar
•Investing in brand building and innovation. kets
•Doing work on formulating new brand architecture for Darling .
Star
FY17 brand.
ted
•Communication across platforms, experimenting with digital and distinctive
exp
category development initiatives, improvements to supply chain.
andi
ng
cov
•Continued to expand presence with the launch of Wet Hair product portfolio through erag
local manufacturing operations in Nigeria and e
FY18 Kenya. acro
•Maintained sharp focus on building a strong innovation pipeline and continue ss
engaging in deep consumer connect and research. Nort
h
and
Wes
•Brand building and innovation are critical priorities.
t
•Developed new brand architecture and innovation platforms, and refreshed
Nige
communication and digital strategies.
ria,
whi

Godrej Consumer
ch were previously underserved by Darling. In Kenya, increasing direct

coverage by on-boarding new wholesalers.
Profile of Dharnesh – Prior to joining GCPL, Dharnesh worked at Nestle for 15 years as CEO
Nestlé Indonesia, CEO Nestlé Nigeria,
Chairman Nestlé Nigeria Trust, Group Sales Director Nestlé
Southern Africa. Prior to Nestle, Dharnesh was associated with printing and textile industries in
South Africa for 15 years.

Godrej Consumer
From FY20, i.e. the time Dharnesh took over as the CEO of GCPL’s GAUM, we see a change in
strategy by focusing on GTM strategy. The evidence of this is lowering dependence on
wholesalers, vs deploying more feet on street, to better gauge the competitive landscape at the
retail framework and seek better consumer insights.
Exhibit 61: New CEO’s strategy of focusing on improving GTM strategy bridges the missing link, in our view
FY20 Annual report:
i. Ramping up go-to-market efforts across Africa. ii. In Nigeria, where trade is largely unorganised and wholesale-led, we are scaling up reach through a
more intensive redistribution network. Focussing on driving higher same-store throughputs with improvements in range and quality of execution.
Generating demand through new product seeding models which will help initial retail penetration. iii. In Kenya, continued scaling up of distribution
through a combination of various models (sub-distributor, van sales, and wholesaleassist). Shifted focus from primary sales to secondary sales, through
strong partnerships with distributors and by monitoring the distributor ERP system. iv. In South Africa, we piloted a ‘Perfect Stores’ programme to
increase sales by enhancing shopper experience. v. The restructuring of salon channel in Africa will be a big focus. Salon education programmes are key
to building influence and generating demand in the dry hair care category. Pilots on the wet hair salon programme in Kenya have shown early success,
and we will be scaling this up. vi. In Africa, sales force automation has helped expand coverage and improve brand visibility across the subcontinent.
Following the roll-out across the general trade and salon channels, the focus will now be on scaling up distribution, extracting efficiencies and building
accountability.
FY21 Annual Report:
Dharnesh's
i. Undertaken a revised strategy shared with the Board in August 2020. As part of this, shifted to a centralised category management structure from a
strategy for geography-led one. We are ramping up our go-to-market efforts across Africa. ii. In Nigeria, where trade is largely unorganised and wholesale-led, we
GAUM market are scaling last-mile distribution through van, sub-distributor models, and salon advocacy. We also launched a door-to-door (D2D) sampling drive to
build demand and educate consumers on recently launched HI portfolio. This resulted in a significant shift in non-wholesale channel contribution. We
will continue the momentum in Nigeria and strengthen fundamentals in South Africa and Kenya. iii. In Africa, sales force automation has helped expand
coverage and improve brand visibility across the sub-continent. Following the roll-out across the general trade and salon channels, the focus will now
be on scaling up distribution, extracting efficiencies, and building accountability.
March 2021 investor call:

10:00:10
i. One of the big projects is really the go-to-market opportunities. So making sure that we understand our channels more, the geographic play more, and
how do our consumers get access to our products more, and in these markets it is really about current availability. Effective distribution continues to be
the single most determinant factor of success in African consumer markets in particular where the retail market is extremely fragmented. ii. Made a lot
of changes in the team over the past period because we have to transform into high-performing agile organization while having the right competence
to meet in place, building capabilities for the future, etc., become more and more focused. iii. Reason for growth resumption in double digit is through
focusing on the route to market. So are we just a distributor, wholesaler, push organization or we understood off takes. I would rather come to an ideal
world where it is purely replenishment model-based on consumer off takes. iv. A lot of stuff that we started to do was we realized that the distribution
gaps we had and Nigeria is really a case study where we have remapped the entire route to market and we have put in an entire new distribution
network.
GAUM’s performance over the last few quarters after Dharnesh rolled out his new GTM strategy
increases the probability of the strategy’s success.
March 28, 2022

Godrej Consumer
Exhibit 62: GAUM business reported double digit growth in Exhibit 63: …as Covid impact receded , growth has largely
only 4 of 10 quarters pre-Covid… remained in double digits
Africa revenue growth Africa revenue growth

15 % 60 %
50 %
10 %
40 %
30 %
5%
20 %
0% 10 %
0%
19
19
19
20
18
18
18
19
20
20
-5 %
QFY
QFY
QFY
QFY
QFY
QFY
QFY
QFY
QFY
QFY
21
21
21
22
22
22
QFY
QFY
QFY
QFY
QFY
QFY
2
3
-10 %
3
Wet hair care opportunity – Ready to be exploited

With inorganic entry into wet hair care market (i.e. hair care products covering shampoos,
conditioners, lotions etc for Afro Americans), GCPL became one of the global leaders in the hair
care market serving people of African descent. Globally, the wet hair care market is ~USD1bn
(~USD0.8bn in USA). In order to strengthen its presence in the wet hair care portfolio, GCPL,
post acquisitions in 2016, focused on local manufacturing operations in Nigeria and Kenya and
launched its natural hair care range in the USA. Wet hair care is also complementary to dry hair
care portfolio – consumers of dry hair care need to use wet hair care products to retain shine
and quality of hair. That said, competition to GCPL’s wet hair care portfolio is likely to remain
strong since global FMCG companies such as Loreal and Unilever are also looking to scale up
their wet hair care business in Africa. This said, GCPL has built inhouse manufacturing capability
for its products vs Unilever and Loreal which largely rely on imports. This makes GCPL’s products
cheaper than Unilever and Loreal. Pricing in sync with competing brands
We acknowledge that it is difficult to compare GCPL’s product pricing with that of competition
since the intricacies of each product/brand is different. But we have tried to compare the pricing
of GCPL’s dry hair as well as wet hair portfolio vs competition. We note that GCPL’s pricing is
largely at par with that of competing products.
Exhibit 64: Pricing of hair extension is largely similar to that of Darling hair Exhibit 65: …likewise, pricing for wet hair care portfolio too is quite in
extension… line with competing products
Hair extension Pricing Wet hair care product
Darling African Pride Pricing
Darling Spring Twist Crochet Hair Extensions (pack of 4) USD 29.99 African Pride Moisture Miracle Coconut Oil & Baobab Oil
USD 9.99 Leave-In Hair Cream (15 ounce)
Darling Jozi Locs Crochet Hair Extensions (pack of 1) USD 44.99 African Pride Moisture Miracle Hydrate & Hold Curl
USD 21
Defining Hair Gel (3 Pack, 18 ounce)
African Pride Anti Breakage Leave In conditioner (15
Other brands ounce) USD 9.99
Wand Curl Hair 8inch Jamaican Bounce Synthetic Other brands

USD 26.99
Crochet Twist Braids Hair Extension (pack of 5)
Shea moisture, black castor oil leave in conditioner (11.5
SamBraid New Soft Locs Crochet Hair, Black Curly (pack USD 11.99
USD 34.98 ounce) of 7)
French Curl Braiding Hair Loose Wavy Braiding Hair Shea moisture, silicon free conditioner (13 ounce) USD 11.99 USD25.99
(pack of 4) Flawless detangling leave in hair conditioner USD 9.97
Source: Amazon, Ambit Capital research

Godrej Consumer
Source: Amazon, WalMart, Ambit Capital research
Double-digit growth with margin expansion a possibility

Double-digit category growth coupled with GCPL’s renewed strategy of bolstering
GTM and diversification of portfolio to high-margin wet hair care portfolio make us confident of
14% revenue CAGR for the GAUM cluster over FY21-25E albeit on a low base. EBITDAM for
GAUM fell from 16-17% in FY16 to ~10% in FY20/21. Benefits of operating leverage flowing from
low-teen revenue CAGR, lower dependence on the wholesale channel (reducing a layer within
distribution framework) which will reduce margin outgo, and cost savings initiatives (benefits
seen in India and Indonesia) should aid margins. We believe GAUM cluster EBITDAM can move
back to ~14% by FY25E from 10% now (17% in FY17).
But watch out for currency devaluation
Play in emerging market offers the opportunity to grow category and revenue in double digits.
But there are inherent risks such as geopolitical crisis, currency devaluation, competition from
other countries etc. Of the last 4 years (period post acquisitions), the GAUM market’s reported
currency has been lower than constant currency growth (CCY) in 3 of 4 years. Devaluation risk
during those periods has been in the range of 1-4% (refer below exhibit). But this also means,
for GCPL to grow at ~14% CAGR, their constant currency growth will need to be >15% assuming
incremental currency depreciation is ~1%.
Exhibit 66: Except for FY19, CCY has been ahead of Exhibit 67: …currencies of key African markets (Nigeria reported growth, suggesting risk of
currency devaluation and SA) have depreciated ~49%/24% over the last will be a pertinent risk for GAUM cluster… decade while Kenyan currency has
remained stable
GAUM CCY growth (%) GAUM Reported growth (%)

% Depreciation vs INR (2012-2022)
15% 10 %
0%
11%
-10 %
7% -20 %
-30 %
3%
-40 %
-1% -50 %
-60 %
-5% Kenyan Shilling Nigerian Naira South African
FY18 FY19 FY20 FY21 Rand
Source: World Bank, Ambit Capital research Source: World Bank, Ambit Capital research
Indonesia – Course correction underway

GCPL’s Indonesia journey began after the acquisition of PT Megasari Mamsur for `11.2bn in
2010. GCPL’s Indonesia portfolio includes:
Exhibit 68: Key brands for Indonesia market
Brands Category/Description
HIT Leader in HI
Stella Leader in air freshener
Mitu Leader in baby wipes
Saniter Hygiene range of products
NYU Hair colour range

Godrej Consumer
Exhibit 69: Indonesia business reported sales growth of Exhibit 70: …but with margin expansion and limited mere 4% CAGR over FY16-21…
incremental capital deployed, RoCE improved steadily
Revenue Revenue growth EBITDAM 25 % RoCE

20,000 30 %
20 %
18,000
15 % 15 %
16,000
` bn
10 %
14,000
0%
12,000 5%
10,000 -15 % 0%
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
The Indonesian FMCG market growth slowed down from 2017 (refer exhibit 71) for a variety of
reasons, including slow increase in minimum wages, weak agricultural commodity prices leading
to lower farm income etc.
Exhibit 71: Indonesia consumer goods industry growth started to Exhibit 72: …and revenue growth for Unilever Indonesia and GCPL (to
decelerate from 2015… some extent) too slowed
Consumer goods industry growth Unilever Indonesia rev growth GCPL Indonesia rev growth
12 % 15 %
10 %
8%
5%
4%
0%
0%
-5 %
-4 % -10 %
2015 2016 2017 2018 2019 2020* 2014 2015 2016 2017 2018 2019 2020
Source: Unilever Indonesia Annual Report, Ambit Capital research; Data for 2020 is Source: Unilever Indonesia, GCPL, Ambit Capital research
household consumption data
Exhibit 73: This led to massive compression in Unilever Indonesia’s Exhibit 74: Indonesia’s RTM largely similar to that of India but with
earnings multiple different channel growth rates
3 QCY20
60 x Unilever Indonesia 1yr Fwd P/E
Others, 7%
50 x Hyper/Super
markets, 7%
40 x
Mini
30 x markets,
19 %
20 x
10 x Traditional
trade, 67%
Feb-19
Feb-20
Feb-15
Feb-16
Feb-18
Feb-21
Feb-22
Feb-17
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Source: Unilever Indonesia Annual Report, Ambit Capital research; Data for Source: Unilever Indonesia, GCPL, Ambit Capital research 2020 is household
consumption data
Household insecticides (35-40% of Indonesia’s revenues) – Filling white spaces

The size of the Indonesian HI market is USD0.5-0.6bn and has grown at 6% CAGR over 2014-21.
Indonesia has a tropical climate and is prone to dengue and malaria; hence HI products are of

Godrej Consumer
relevance in the geography. As depicted in the below exhibit, aerosol & LV constitute a larger
share of the Indonesian HI market at ~60%. Within that, we understand aerosol has the lion’s
share. HI is largely a three-player market in Indonesia with GCPL leading the category followed
by S C Johnson and Fumakilla. Basis management’s commentary, GCPL has been able to
increase its share in the HI category by 50-100bps over the last 3-4 years.
Exhibit 75: Market segmentation of Exhibit 76: …GCPL was largely present in Exhibit 77: …and with the launch of Indonesian HI
suggests… only 60% of the category before… HIT PIRAMIDA will enter the coil segment
% Coils & Personal %
Coil
repellant
30%
Aerosols 15%
& LV Aerosols
60 % Personal & LV
repellant 85 %
10%
Source: Company, Ambit Capital research Source: Company, Ambit Capital research Source: Company, Ambit Capital research
GCPL’s foray into the coil segment not only fills a white space but also offers a product in an
economy range which can attract low to mid-income consumers. With this, we expect GCPL to
not only strengthen its position in the HI category but also potentially sustain industry leading
growth of high single digit.
Air freshener (25-30% of Indonesia’s revenues) – Category growth to revive but only gradually
Air care is ~USD100mn category which has grown at 6-8% CAGR from 2015-2021. GCPL is the
market leader with brand ‘Stella’. Air care penetration in Indonesia is ~30% vs high single digit
for India and >50% for developed countries. Considering the higher category penetration (vs
India) and income impact on consumers post Covid, the air care category’s growth may remain
subdued in the near term. Also, as in many consumer categories, in an economic distress
scenario, there are always private labels which crop up. This happened in air care category in
Indonesia. Hence, we believe in the near term air care growth would remain weak for GCPL. But
in the mid to long term, we expect GCPL to be able to clock high single-digit revenue growth as
it works on the price-value equation, introducing more products and saliency of 40% of
revenues from the premium part of air fresheners.
Baby wipes (~15% of Indonesia’s revenues) – Need to sacrifice margins for growth
Baby wipes is ~USD150mn category and has grown at a mid-teen run-rate over the last 6-7
years. Here, too, GCPL is the market leader. But over the last 18-24 months, we understand
(corroborated by management commentary) it has lost some share largely due to aggression of
Kimberly Clark and Unicharm. We understand that Softex Indonesia was looking to sell its baby
care portfolio and hence from 2018 had become quite competitive in pricing and distribution of
its baby care range, including wet wipes. In 2020, Softex Indonesia was sold to Kimberly Clark
for a valuation of USD1.2bn. This strategy of Softex has been continued by Kimberly post
acquisition too. In the process, even competing brand Unicharm got aggressive with its pricing,
resulting in a lower profit pool for the category and GCPL losing some market share. Going
ahead, while management remains confident of clawing back lost market share due to
enhanced distribution and competitive pricing, we would wait for 2-3 quarters before looking to
build double-digit revenue growth in the segment.
Hygiene & hair colour (10-15% of Indonesia’s revenues) – Too nascent
This category which was born during Covid reached a brand size of ~`1.5bn in a year. During
Covid, GCPL launched multiple home hygiene products such as hand wash, sanitizer, soap, air &
surface sanitizer etc. However, as we enter the post-Covid era, we wonder what proportion of
the hygiene portfolio would remain relevant. While management believes “focusing on building
parts of hygiene portfolio especially soaps, powder to liquid hand wash are going to be much
more enduring even post Covid”, we do not echo that view. This would imply soft growth in the
postCovid era considering the high base. In FY17, by cross-pollinating from its Indian portfolio,

Godrej Consumer
GCPL forayed into the hair colour range under brand NYU. We understand this brand’s saliency
is 2-3% to GCPL’s Indonesian revenues. The hair colour market in Indonesia is USD50mn with
Loreal, Mandom and Victoria Care having ~55% share. While hair colour is a small portfolio for
GCPL’s Indonesia business, it has the potential to leverage its category expertise of its India
operations. This can help it introduce new variants/products and colours. Distribution would be
critical in the salon/beauty channel for the brand to scale up.
Revamp of distribution is critical
Historically, GCPL’s retail focus was through the modern trade route (~70% revenue saliency)
followed by general trade (~28%) and e-com (~2%). Over the last 3-4 years, Indonesia’s retail
market has changed with the GT channel growing faster than MT. With this change in channel
dynamics, GCPL had to recalibrate its go-to-market strategy over the last few years.

Godrej Consumer
Exhibit 78: GCPL’s strategy to revamp RTM has already been implemented; likely benefits should come from FY23E
•We are rolling a phased go-to-market transformation in Indonesia. The first

phase includes streamlining and simplifying channel models, strengthening
channel partnerships, improving wholesale efficiency and coverage.
FY19
•We continued to strengthen our approach by simplifiying our channel
model, driving same-store growths and launching a loyalty programme.
•Conducted extensive distributor management and ROI trainings.
•Number of active outlets in Indonesia increased by 17%, thereby resulting in 110,000

monthly outlet transactions.
FY20
•Modern trade remains a critical channel of sales and undertake joint business
planning.
•Direct distribution, through active registered outlets, in Indonesia continued to grow

strongly to reach nearly 1,60,000 outlets.
•In India and Indonesia, it has also refocused attention on the role of traditional
kirana or neighbourhood convenience stores.
•In Indonesia, we significantly accelerated go-to-
market transformation. Our efforts on route-to-market consolidation have stabilised
well.
FY21 •Achieved strong reach expansion led by two key initiatives— dedicated salesmen to add and
nurture new outlets, and motorist salesmen to identify and further expand
last-mile distribution.
•Expanded alternate channel distribution in pharma and health and beauty,
which have strong synergies with our baby care and hair colour portfolios.
•We will continue distribution expansion and double down on new outlets
while maximising throughput from existing distribution base.
10:00:10
Even in a recent interaction (27 Sept 2021) with investors/analysts, Akhil Chandra, Indonesia
cluster head, alluded that GCPL’s go-to-market strategy is to: (i) reach direct coverage of
200,000 outlets, which is appropriate considering that even Nestle Indonesia reaches ~250,000
outlets directly and (ii) activate wholesalers and do pilots with spreaders. Basis our interaction
with an expert, a re-calibrated go-tomarket was one of the missing links for GCPL, which is set to
be bridged. This should help GCPL ensure no sales loss due to non-product placement. With this,
GCPL would also be able to address competition issues in categories like wet wipes.
Exhibit 79: Indonesia does not have currency volatility Exhibit 80: … with last decadal median currency movement
issue as seen in Africa… vs INR largely flat
Indonesia CCY growth (%) Indonesia reported growth (%) 15 % % Depreciation vs INR
15% 10%
10 %
5%
5%
0%
0%
-5 % -5 %
-10 % -10 %
CY14
CY17
CY18
CY21
CY13
CY15
CY16
CY19
CY20
CY22
-15 %
FY18 FY19 FY20 FY21
Source: Company, Ambit Capital research Source: Bloomberg, World Bank, Ambit Capital research
March 28, 2022

Godrej Consumer
Indonesia’s growth revival will take time

Considering the above-mentioned aspects, we expect the Indonesia business to clock 9%
revenue CAGR over FY21-25E even on a soft base of 4% growth in FY21. Indonesia business’
EBITDAM is 27.7%. With increasing competitive intensity in baby wipes, increasing saliency of
low-margin coil business and distribution rejig, we expect Indonesia margins to moderate to
~26% in FY23E and potentially inch up to ~27% by FY25E.
Exhibit 81: Better growth in HI and hair colour will be offset by slower growth in hygiene and wet wipes
Category Category Market Growth levers Near term growth concerns, if any
CAGR position
HI 6-7% Leader Entry into coil segment None
Lower consumer disposable income
Air freshner 6-8% Leader Penetration led growth and rising share of private labels
Baby wipes Mid-teen Leader Competitive product pricing and High competitive intensity amongst
distribution expansion top 4-5 brands
High during Growth sustenance in soaps and Growth to moderate in sanitizer,
Hygiene FY20-22 N.A. hand wash surface cleaner and other hygiene
related products
Brand building and establishing Marginal
Cross pollinating products
Hair colour N.A. distribution in salon, beauty
player and
learnings
from
India
channels
Exhibit 82: In effect, optimism in IB is led by GAUM followed by Indonesia

FY16-21 How are they being Probability of
Geography Past growth concerns What more can be done? revenue CAGR addressed success
GAUM 13% Inefficient GTM Rewiring GTM Acceleration in cross pollination
Macro slowdown, shift Filing whitespaces in HI, Improve competitiveness in wet

Indonesia 4%
in channel mix recalibrating channel mix wipes
Godrej Consumer
Right-sizing balance sheet + margin expansion => RoCE

improvement
GCPL undertook multiple inorganic acquisitions over FY06-17 and thus expanded its business
across Asia, Africa and LATAM. Global aspirations led to increase in debt to a peak of `29bn in
FY19 from `0.07bn in FY06 and RoCE compression to 20% in FY21 vs 142% in FY06. Key driver
of RoCE improvement now will be EBITDAM expansion led by improvement in GAUM
EBITDAM (refer exhibit 88), maintaining elevated margins in Indonesia and India (refer
exhibits 89, 92) through improving revenue trajectory, cost savings and productivity gains.
Incremental capex towards plant automation and maintenance capex would mean likely
balance sheet CAGR of 10% over FY21-25E vs EBITDA CAGR of 13%. So we expect RoCE to
steadily improve to ~34% by FY25E from ~20% in FY21.
Acquisitions led to balance sheet expansion

In its quest to expand in international geographies, GCPL made 11-12 acquisitions over the last
15 years. This did help post 20% revenue CAGR over FY05-21, but it led to 37% CAGR in balance
sheet. However, with 7% EBIT CAGR, consolidated RoCE dipped from 165% in FY05 to 20% in
FY21.

Godrej Consumer
Exhibit 83: Inorganic acquisitions led to debt + CE CAGR of Exhibit 84: …and net block/goodwill grew at a CAGR of 38% over FY05-21 on the liability
side... 36%/50% on the asset side
Networth Debt Net block Goodwill NWC

120,000
95,000
100,000
75,000
80,000
` mn
55,000
60,000
` mn
40,000 35,000
20,000 15,000
0
(5,000)
FY05 FY09 FY14 FY17 FY21 FY05 FY09 FY14 FY17 FY21
Now, however, a large part of capex is already undertaken (incremental capex more for
maintenance/automation). With no immediate M&A on the cards, we expect capital employed
CAGR of 10% over FY21-25E. This coupled with EBITDAM/EBIT expansion of 110bps/140bps over
FY21-25E should help RoCE expand to 34% in FY25E from 20% in FY21.
Godrej Consumer
GAUM EBITDAM improvement to lift cons. EBITDAM

Within geographies, India and Indonesia clocked EBITDAM expansion of 360bps/450bps over
FY16-21 whereas GAUM cluster posted ~740bps dip in EBITDAM. This pushed GAUM’s EBITDA
contribution to 10% in FY21 from 19% in FY16.
Exhibit 85: India and Indonesia posted ~360bps/450bps Exhibit 86: …which led to GAUM’s share in EBITDA EBITDAM expansion over FY16-21…
dropping to 10% vs 19% in FY16
India Indonesia GAUM India Indonesia GAUM
30 % 27 % 28 % 100 %
25 % 16 % 13 % 11 % 10 %
24 % 19 %
25 % 23 %
80 %
20 % 17 %
15 % 60 %
15 % 11 % 10 % 10 %
10 % 40 %
62 % 67 % 69 % 68 % 69 %
5% 20 %
0%
FY17 FY18 FY19 FY20 FY21 0%
FY17 FY18 FY19 FY20 FY21
EBITDAM improvement levers in GAUM

For the GAUM cluster, EBITDAM improvement would be led by: (i) revenue growth of
14% CAGR over FY21-25E and resulting operating leverage benefit; (ii) reduction in wholesale
dependency; (iii) product mix improvement (increasing share of highermargin wet hair care);
and (iv) cost saving initiatives (successfully implemented in India & Indonesia). Factoring these,
we build in 470bps EBITDAM improvement over FY21-25E.
Exhibit 87: Worst of margins seems to be behind... Exhibit 88: …we expect ~470bps EBITDAM expansion over FY21-25E
20 % GAUM
16 %
15 %
14 %
10 %
12 %
5%
10 %
0%
8%
FY21 FY22E FY23E FY24E FY25E
GAUM

Godrej Consumer
Indonesia’s elevated EBITDAM can sustain

GCPL’s Indonesia business operates in an EBITDAM band of 26-28%, which amongst the highest
within Indian FMCG companies. Thus, it seems Indonesia’s EBITDAM can potentially only
compress hereon. Add to that, the thesis of increasing competitive pressure in wet wipes and
GCPL Indonesia’s foray into relatively low-margin coil business should mean potential EBITDAM
compression hereon. We, however, believe that those would be transient factors. GCPL
Indonesia will be able to sustain 26-28% EBITDAM led by: (i) change in GTM strategy - moving
from high cost to serve MT to lower cost to serve GT/convenience store channels and (ii)
inherent margin profile for
Indonesian CPG companies in the band of 25-30% (refer below exhibit). Thus, as the business
wades through near-term RM inflation and competitive issues, we expect Indonesia margins to
hold on to 26-28% levels. We expect GCPL’s Indonesia margins to moderate to 26% in FY23E
(led by GM pressure), but expect a revival to ~27.5% by FY25E.
Exhibit 89: Indonesia’s EBITDAM likely to sustain at Exhibit 90: Other CPG companies in Indonesia too elevated 26-28% EBITDAM band
operate at 25-35% EBITDAM
Indonesia EBITDAM Unilever Indonesia Industri Jamu

28 % 40 %
27 %
35 %
26 %
25 % 30 %
24 %
23 % 25 %
22 %
20 %
FY17
FY18
FY19
FY20
FY21
FY24E
FY22E
FY23E
FY25E
FY17 FY18 FY19 FY20
Source: Company, Ambit Capital research Source: Bloomberg, Company, Ambit Capital research; Note – Industri
Jami’s business includes CPG, Ayurvedic personal care and F&B products
Risk to India margins possible

India business GM could drop to 50-52% in FY22E and FY23E vs 57-59% during
FY16-21 due to sharp RM inflation [PFAD (soaps portfolio) and crude-linked derivatives (HI and
air care)] considering the price elasticity and competitive pressures across categories. In the
medium term (FY24-25E), we expect GM to settle at 54-55% with pains of RM inflation expected
to get over from 2HFY23E. Over the last 5-6 years, GCPL clocked healthy EBITDAM expansion led
by cost-saving measures (Project Pi) and savings in ad spends and employee cost. Basis
management’s refreshed strategy, GCPL is looking to accelerate cost saving initiatives, increase
productivity through higher digitization and automation, and plough part of those gains into ad
spends. Considering GM compression, we expect EBITDAM to compress ~260bps in FY22E but
expand marginally by 40bps in FY23E. Gradually, as RM pressure ebbs, we expect India EBITDAM
to inch back to ~26% by FY25E.
March 28, 2022

Godrej Consumer
Exhibit 91: Over the last 6 years, India EBITAM Exhibit 92: Reversal of some of those cost items and GM improvement was aided by GM expansion,
lower ad spends pressure will mean EBITDAM improvement should only and employee cost, and some benefit of cost savings play out from FY24E
FY16-21 EBITDA Margin EBITDAM

28 %
25 % 1.3 % 21.7 % 27 %
19.4 % 1.2 % 1.0 % 0.3 %
22 % 26 %
0.4 % 1.2 %
19 % 25 %
16 % 24 %
13 %
23 %
10 %
22 %
Power
GM
Freight
Ad spends
Employee cost
Other Expenses
EBITDAM FY16
EBITDAM FY21
21 %
20 %
FY16
FY17
FY18
FY19
FY20
FY21
FY24E
FY22E
FY23E
FY25E
Valuation comfort + execution triggers

GCPL offers a mix of narratives: (i) hopes on new MD & CEO with strong credentials, (ii) new
GAUM cluster head with relevant expertise, (iii) wellarticulated strategy of focusing on fewer but
bolder innovations (crucial given limited innovations by competition), (iv) ample levers for
margin improvement in GAUM and potential to hold on to elevated margins in India/Indonesia.
Putting these together, we expect GCPL to clock 11%/13%/13% revenue/EBITDA/PAT CAGR over
FY21-25E. As we look beyond FY25E, presence in low-penetrated categories (ex soaps),
recalibrating GTM in IB and cross-pollination opportunities should help GCPL clock 9.6%/9.8%
revenue/FCF CAGR over FY21-41E. With likely improvement in execution by the new
management, we expect GCPL to also get re-rated. Without factoring any optionalities, our DCF-
based TP comes to `848.
Revenue/EBITDA/PAT CAGR of 11%/13%/13% over FY21-25E
Growth revival in HI and discretionary categories as India comes out of Covid, resurrection of
GTM strategy in GAUM and Indonesia and transient competitive issues in Indonesia getting
nullified in 2-3 quarters would be the growth drivers of GCPL.
Exhibit 93: We expect 11% revenue CAGR over FY21-25E vs 6% over FY16-21
` mn, unless specified FY21 FY22E FY23E FY24E FY25E Comments

P&L
Better execution led growth in HI, Air care and Hair colour in India and
Revenue 110,286 123,792 137,920 152,428 168,475 GTM changes in GAUM & Indonesia to aid in delivering 11% CAGR over FY21-
25E
Revenue growth (%) 11% 12% 11% 11% 11%
India:
Improving penetration, innovation and increasing ad spends to
Home Care 12% 9% 10% 10% 10%
improve HI category growth rates
Market share gains in soaps, post Covid sales improvement in discretionary
Personal Care 17% 13% 11% 10% 10% categories of hair colour can lead to double digit
segment growth
IB:
GUAM 8% 20% 14% 12% 12% Improvement in execution of GTM strategy, expansion of wet hair
care portfolio will lead to low double digit growth

Foray into coil market, addressing competitive pressures and GTM
Indonesia 4% 3% 12% 10% 10%
changes can revive growth from 2HFY23E onwards

Godrej Consumer
LATAM 19% 9% 9% 9% 9%
Gross margin (%) 55.3% 50.5% 51.5% 54.0% 55.0%
Ad spends (%) 6.6% 6.6% 7.3% 7.5% 7.5%
EBITDA 16,528 16,951 17,827 21,904 24,481
EBITDA growth (%) 11% -1% 12% 26% 16%

Near term RM pressure to weigh heavily on GM till FY23E
Expect India level ad spends to increase at 15% CAGR over FY21-
25E which will lift overall ad spends

Cost savings and margin improvement in GAUM should delivery
13% EBITDA CAGR
EBITDA margin (%) 22% 19% 19% 22% 23%
PAT growth (%) 15% -5% 12% 34% 18% GM and EBITDAM expansion from FY24E to lead to PAT CAGR of
13%
Cash flow statement
Operating cash flow 20,296 19,349 21,508 27,817 32,524
Free cash flow 18,658 17,737 19,396 25,205 29,412 With controlled capex, OCF largely used towards debt repayment
Gross borrowings 7,595 19,000 13,500 8,000 4,000
Ratios
Fixed asset turnover (x) 2.4 2.6 2.7 2.9 3.0 With capex largely behind, expect FA turnover to improve
RoCE (%) 20% 19% 22% 29% 34% EBIT margin improvement to drive RoCE improvement
Exhibit 94: We are lower than consensus for FY22E/23E on margins; with recent run-up in RM prices, we believe
consensus will cut margin estimates
Ambit estimates Consensus estimates vs consensus
` mn
FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E
Revenues 123,792 137,920 152,428 122,910 135,146 149,364 1% 2% 2%
EBITDA 23,549 26,807 33,133 25,738 29,125 33,253 -9% -8% 0%
PAT 16,304 18,565 24,408 18,460 21,061 24,382 -12% -12% 0%
Source: Bloomberg, Ambit Capital research
Absolute valuations: DCF captures LT value accretion

In our DCF-based valuation model, we build 9.6%/9.9% revenue/FCF CAGR over
FY21-41E. After that, we build in two-stage TG, i.e. 8% over FY41-61E (opportunity to expand
into adjacencies, premiumisation, larger personal care & home care play in India and cross-
pollination opportunities in IB) and 6% beyond that.
We are building in the following in our long-term estimates:
 India business – Penetration & premiumisation: GCPL will be able to improve penetration
across HI, air care and hair colour. In soaps, it will gradually pivot into premiumisation and
then adjacencies in body wash segment.
 GAUM – GTM improvement & cross-pollination: Taking cognizance of hair care category
relevance and expected growth rate (early teens) and improvement in GTM, GCPL will be
able to easily defend its market share. Beyond that, as it looks to expand its HI range
leveraging on GCPL’s category expertise (leadership in India and Indonesia), we expect the
GAUM cluster to be able to maintain low double-digit growth.
 Indonesia – Cross-pollination & adjacencies: Undertaking category development (like in
India) and recalibration of GTM strategy to expand presence in GT/convenience stores,
March 28, 2022

Godrej Consumer
GCPL is under-indexed to medium to long-term growth vectors. This should yield high
single-digit growth over the medium to long term.
 Near-term (FY21-25E) EBIT margin (including other income) expansion of 190bps will be a
function of 140bps EBITDAM expansion. Beyond that (FY25-41E) we remain conservative in
our EBIT margin estimates since the company will continuously undertake category
development activities. That would entail higher ATL and BTL spends, more feet on street,
higher innovation etc, all of which may drive higher operating cost. We are thus building
just 80bps EBIT margin expansion from FY25-41E.
 We consider CoE of 12%. This is similar to that given to Tata Consumer (similar international
business saliency) and Britannia (risk of ICDs) and 50bps higher than the CoE used for HUL,
Dabur and Marico.
Exhibit 95: Revenue CAGR would be led from across Exhibit 96: Near-term EBIT margin expansion led by geographies viz. India,
GAUM and Indonesia GAUM EBITDAM improvement; post which EBIT margin expansion would be slim
24 %
Revenue CAGR EBIT CAGR
15 % 23 %
22 %
12 %
21 %
9%
20 %
6% 19 %
18 %
3%
17 %
0% FY16 FY21 FY25E FY31E FY41E E
FY16-21 FY21-25E FY25-41E BIT margin

Godrej Consumer
Exhibit 97: Scenario analysis with TG & CoE beyond two stages DCF Exhibit 98: … & scenario analysis of growth rates beyond explicit DCF
forecast period… forecast
Exhibit 99: FY18, FY19 and FY20 EPS estimates faced downgrades, which
moderated share price performance… Exhibit 100: ..and also led to P/E de-rating (below 3 years rolling
average multiple now)
Stock Price (LHS - in Rs) 2018 EPS Est (Rs )
2019 EPS Est (Rs ) 2020 EPS Est (Rs ) 1 yr fwd PE 3 yrs rolling avg
60
1,000 25
50
800 20
40
600 15
30
400 10
)
(x
20
200 5
10
0 0
0
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Mar-13
Mar-15
Mar-16
Mar-18
Mar-19
Mar-21
Mar-22
Mar-11
Mar-12
Mar-14
Mar-17
Mar-20
Source: Bloomberg, Ambit Capital research;
Relative valuations also attractive

Apart from looking at absolute valuations, from a relative valuation perspective too
GCPL is reasonably priced (see below exhibit) vs FMCG peers considering expected
FY21-24E revenue, EPS CAGR and RoE. As GCPL displays improvement in execution (category
development and GTM changes), we believe there is scope for re-rating too (refer above
exhibit).

Godrej Consumer
Exhibit 101: GCPL’s valuation is below FMCG mean despite FY21-24E revenue/EPS growth being in the top quartile of the FMCG peer set
GCPL vs Marico vs Dabur – What to bet on?

The task at hand for GCPL will take time to pay off. So we do not expect an immediate
turnaround. Also, gross margin pressures across most of GCPL’s categories will weigh on
growth and margins in the near term (6-9 months). Thus, in the near term we prefer
Marico>GCPL>Dabur. However, as Sudhir and team’s strategies start to play out and
considering GCPL’s attractive valuations, we prefer GCPL>Marico>Dabur over the medium
term.

Godrej Consumer
Exhibit 102: GCPL’s strategies aim to fix past issues; Exhibit 103: …thus near-term PAT CAGR should be healthy Dabur and Marico aim to not only
strengthen the core but for GCPL vs peers,
whilst being available at an attractive also valuation
seed newer categories… Marico
60 x
GCPL Dabur
Sustain
penetration - led Nestle
Category development/ growth in Saffola 50 x
TAM expansion
FY24 P/E
Build food Dabur HUL
Strengthening the core 40 x Marico
portfolio Tata
Increase ad Distribution spends, Sampling Consumer
expansion in rural
Revival of growth 30 x Britannia
Modern formats & GCPL
Aspire for break- packaging through in VAHO
changes 20 x
innovation
Sustain steady 10 % 15 % 20 % 25 % 30 %
especially in volume growth in
Healthcare PAT CAGR FY22-24E
core
Recalibrating
Revival of growth
GTM, especially in
in IB
IB
Source: Bloomberg, Ambit Capital research; Note - Moon chart indicates Source: Ambit Capital research probability of success;
Narrative of new MD & CEO

Looking into history, we see high correlation between appointment of new MD and/or CEO and
improvement in companies’ financial and operating performance. This eventually translates
into superior shareholder returns (refer exhibit 106-109). With Sudhir Sitapati’s appointment as
MD & CEO of GCPL, there are clearly elevated expectations of superior execution. This is
especially in the context of his credentials at HUL as also acclaim (average rating of
Amazon/Flipkart at 4.6/5) that he has received for his book, “The CEO Factory”.
Sudhir’s power packed credentials at HUL
Prior to joining GCPL, Sudhir was the Executive Director for Foods and Refreshments at HUL
(behemoth of FMCG Industry). In his 22-year stint at HUL, Sudhir led teams across geographies
– India, Europe, South East Asia and Africa. Sudhir was responsible for one of the largest FMCG
deals in India, i.e. merger of GSK Consumer with HUL. Under his leadership the Foods &
Refreshments business of HUL became one of the biggest F&B portfolios in India and outpaced
company-level growth. He was also one of the youngest members to be appointed Executive
Director in HUL’s Management Committee.
Exhibit 104: Under Sudhir’s leadership, HUL’s F&R sales Exhibit 105: …company-level growth during FY16-20 by growth outpaced… ~110bps
HUL - F&R Sales HUL Sales

` bn
80
70
60
50
40
30
` bn
20
10
0

Godrej Consumer
Despite Sudhir’s rich experience and splendid track record at HUL, the question is whether one
individual can change the fortunes of a company that has been built over several decades. To
answer this, we looked at how new CEOs in comparable FMCG companies in the recent past
have changed business strategies which led to relative share price outperformance. Britannia,
Nestle and Tata Consumer have seen

Godrej Consumer
management changes over the last 5-6 years and clocked strong P/E re-rating, leading to
handsome shareholder returns.
Exhibit 106: Strategic changes undertaken by new MD/CEOs of below companies paved way for handsome
shareholder returns
Britannia Nestle Tata Consumer
Prior issues
Prior issues - Expat with limited Indian Prior issues
- No market-share gains FMCG experience - Inefficienct capital
- Margin compression - Focus on margins over allocation
- Weak distribution revenue - Poor distribution reach
- Limited innovation
What changed What changed What changed

- ~600bps share gains - MD with sharp Indian - Exit from geographies with
- >650bps EBITDAM FMCG experience sub-par RoCE
improvement - Focus on volume-led - Cross leveraging
- Distribution increase in revenue growth distribution across tea and
states with weak presence ->70 launches/innovations salt
Exhibit 107: Instances of how share price Exhibit 108: …of three FMCG Exhibit 109: …got re-rated by sheer and 1-year fwd P/E…
companies which new management… better execution of strategies
BRIT share price (Rs) NEST share price (in Rs) TATACONS share price (in Rs)
1 yr Fwd PE (RHS ) 1yr Fwd PE (RHS) 1 yr Fwd PE (RHS )
4,500 75 x 20,000 80x 900 60 x
60 x 15,000 60x 45 x
3,000 45 x 600
10,000 40x 30 x
1,500 30 x 300
15 x 5,000 20x 15 x
0 0x 0x 0 0x
0
May-19
Mar-20
Feb-18
Jul-18
Oct-19
Jun-21
Dec-18
Nov-21
Jan-21
Aug-20
Feb-14
Feb-17
Feb-18
Feb-20
Feb-21
Feb-13
Feb-15
Feb-16
Feb-19
Feb-22
Jan-18
Jan-16
Jan-17
Jan-19
Jan-20
Jan-21
Source: Company, Ambit Capital research Source: Company, Ambit Capital research Source: Company, Ambit Capital research
So we believe GCPL’s new MD & CEO too is poised to bring strategic changes in the way
business segments and geographies are looked at, which can lead to potential P/E re-rating –
the extent of which could defer nevertheless!
March 28, 2022

Godrej Consumer
Exhibit 110: Sudhir’s strategy refresh talks about category development initiatives; executing it well can strengthen
growth longevity and leadership position
Current Issues
- Limited innovation and cut back on ad spends;
defocussed from core in Indonesia.
- Improve GTM in GAUM and Indonesia.
- Drive cross pollination benefits.
What Sudhir plans to do

- Look at ways to develop categories be it
through limited but relevant innovation,
increase both ATL and BTL, etc.
- New GTM strategy already put in place in
GAUM and Indonesia.
- Global innovation and category leads to
enable better cross pollination
Strong board of directors and management team
GCPL has 12 members on the board. Of those, half are independent directors with expertise
across various fields including expertise in GAUM market.
Exhibit 111: Of 12 directors, five are from Godrej family, MD & CEO is professional and rest six are independent directors
Name Designation Years on BOD Other Listed Directorships
Nisaba Godrej Executive Chairperson 11 Bharti Airtel, Godrej Agrovet, Mahindra & Mahindra, VIP Industries
Sudhir Sitapati Managing Director and CEO <1 -
Ireena Vittal Lead Independent Director 9 HDFC, Wipro
Narendra Ambwani Independent Director 11 Agro Tech Foods, Parag Milk Foods, RPG Life Sciences
Omkar Goswami Independent Director 14 Ambuja Cements
Pippa Tubman Armerding Independent Director 4 -
Ndidi Nwuneli Independent Director 5 -
Sumeet Narang Independent Director 3 Sapphire Foods
Nadir Godrej Non-executive Director 21 Astec Lifesciences, Godrej Agrovet, Godrej Industries, Godrej Properties
Pirojsha Godrej Non-executive Director 5 Godrej Agrovet, Godrej Properties

Tanya Dubash Non-executive Director 11 Britannia Industries, Escorts, Godrej Agrovet, Godrej Industries
Jamshyd N Godrej Non-executive Director 21 Godrej Agrovet, Godrej Industries, Godrej Properties
GCPL’s management team is a blend of new relevant experienced team members coupled with
old hands with vintage.
Exhibit 112: Blend of old GCPL team members working alongside new MD & CEO and head of GAUM cluster
Years with
Name Designation Background
GCPL
 Prior to this, he was the Executive Director for Foods & Refreshments at HUL. During his 22year stint at
Managing Director and HUL, he led teams across several categories and functions in India, Europe, South East Asia, and Africa.
Sudhir Sitapati <1
CEO  MBA from IIM, Ahmedabad and a B.Sc. in Math with Economics Honours from St. Xavier’s College,
Mumbai.
 In previous role at GCPL, he was CFO for the India & SAARC cluster. Prior to GCPL, he has worked at
Sameer Shah CFO 16 PepsiCo and General Mills.
A Chartered Accountant and has specialised in Treasury Management from CFA Institute.
 Prior to this, he spent ~16 years at Nestle (Africa & South East Asia) in key leadership positions. He was the
Business Head - President Director and CEO of PT Nestle Indonesia and prior to that MD and CEO of Nestle Nigeria.
Dharnesh Gordhon Africa, USA & Middle <2  Holds an MBA and a Bachelor’s degree in Arts (Honours). Has completed PED from IMD Lausanne and LDP
East from London Business School. Also, has a Diploma in Higher Education and is a Chartered Marketer.

Godrej Consumer
 Has over two decades of experience in FMCG and OTC categories across the UK, Southeast Asia and India
Akhil Chandra Business Head - ASEAN 5 with GSK Consumer Healthcare and Reckitt Benckiser Plc.
 Holds an MA in Economics and an MBA from FMS, Delhi.

 Has over 20 years of experience and has worked at companies, such as IBM, The Clorox Company, Cepas
Group and General Mills. In his previous role he worked as MD for General Mills' Argentina business.
Business Head - Latin
José Toscano 4
America  Has a Master’s degree in Business Administration from the University of Buenos Aires and a Post Graduate
degree in Negotiations from Austral University.
Head - M&A and  Responsible for driving new avenues of growth, including M&A.
Omar Momin Business 17
Development  Holds a graduate degree in chemical engineering and Masters in Management from ISB Hyderabad.
 Prior to this, he was the Head of HR at the erstwhile Godrej Sara Lee, and Head of Corporate
Head - Human
Rahul Gama 12 HR at Marico.
Resources
 Holds a postgraduate degree from the Symbiosis Institute of Business Management, Pune.
 Leads the R&D function at GCPL. Prior to this, he was the R&D head at Wipro Consumer Care and has also
Venkateswara Rao Head - Research & worked with Dabur as a Principal Scientist.
8
Yadlapalli Development
 Holds a Master’s in Pharmacy from Andhra University, Visakhapatnam and a Post Graduate diploma in
IPR from Amity Law School, Delhi.
 He leads GCPL's global categories and is responsible for driving strategy, product development
Head - Category, and advertising development. He also leads the global Design and Consumer & Market Insight
Robert Menzies Innovation and 8
teams.
Digital
 Holds a Master's degree in Manufacturing Engineering from Cambridge University.
ESG
Most of the large FMCG companies have always scored in the top quartile of the ESG
parameters. On Environment, GCPL has given targets that it aspires to achieve whereas Dabur
and Marico have largely shied away from giving targets especially in GHG emission and
renewable energy target. On Social and Governance, we assign Green flags to all three
companies. This said, GCPL score better on Independent directors with >10 years’ experience
(refer below exhibit).
Exhibit 113: GCPL scores well on Environment and Independent directors and is largely in line with FMCG peers on other aspects
GCPL Dabur Marico
Environment GREEN FLAG
Carbon/GHG and
zero emission target Achieve scope 1 & 2 carbon neutrality by
FY26;
In FY21, reduced specific GHG emissions by Commitment to reduce Reduce GHG emission intensity
~37% vs FY11 carbon footprint (Scope 1 & 2) by 75% from FY13
Renewable energy target

Increase renewable energy portfolio to Reduce reliance on fossil fuels and shift Improve share of renewable 35% by FY26 (~30%
in FY21) to renewable energy sources energy (currently 72%)
Plastic waste target 100% of the packaging material be recyclable, reusable or compostable by Plastic neutral
by collecting, processing &
FY25; Reduce packaging recycling 100% of the plastic waste 100% recyclable, reusable or
consumption/unit of production by 20% generated from packaging in FY22 & use at compostable
least 10% PCR content packaging portfolio by 2025

Godrej Consumer
Social GREEN FLAG
Met CSR obligations
25%/56.5% of white-collar/blue-collar Females across India functions: 24% Gender diversity (managers &
Gender diversity team members are women; 21% women Marketing - 26%, R&D Centre - 30%, above); 58% of employees in Marketing,
in senior leadership roles Finance - 19% R&D, HR are women
FY21: 0.51 Injury rate, 3 Disabling FY21: 0.29 All Injury Rate & four FY21 Incidents: 3 Lost Time Injury , 21
Safety related incidents, 1 Fatality, 21 Lost Time Injury major incidents First Aid Case, 3 Medical Treatment; Zero
fatalities since 4 years
Governance GREEN FLAG
% of Independent directors 50% 56% 54%
No. Independent directors
2 out of 6 4 out of 7 3 out of 5
>10yrs
No. of women directors

Current 5-year sustainability targets are
In process of developing targets beyond due for completion in 2022. Will declare
Other comments NA 2022, including Plastic Waste Neutral,
2030 environment commitments by end
Water Neutral and Carbon Neutral of FY22
Source: Companies, Ambit Capital research
Catalysts & risks

Near and medium-term catalysts
 Growth revival in HI: While innovation and launch of breakthrough product could take
time, initiating category development measures such as improving ad spends and consumer
awareness can help GCPL improve penetration levels. Considering the same, we are
building 9%/10% home care category growth in FY22E/23E vs 2% sales CAGR in HI over
FY16-21.
 GTM strategy for GAUM: Post diagnosing the true problem of GTM in the GAUM cluster,
we see high possibility of success in that cluster. We thus build 17% sales CAGR in GAUM
over FY21-23E vs 6% over FY17-21.
 Cool-off in RM prices: RM prices are seeing a second round of inflationary pressure,

especially crude and palm oil. FY22E/23 gross margins are estimated to dip by
480bps/280bps vs FY21. Any cool-off of RM prices can pose upside risk to our estimates.
 Margin improvement: Despite FY23E GM improvement of 200bps, our EBITDAM

improvement works to just 120bps. This is owing to building higher ad spend and lower
margins in Indonesia. If GCPL is able to manage competitive pressures in wet wipes through
cost savings and product mix change, EBITDAM improvement could be better than our
estimates.
Near and medium-term risks

 Sustained pressure on GM: Our expectation is that crude and palm oil prices will start to
moderate from 2QFY23. In case that does not play out then it may lead to further cuts in
margins and potentially revenue growth too.
 Failure to revive growth in HI and hair colour: HI and hair colour have grown at just ~2%
and 1% CAGR respectively over FY16-21 due to competition from illegal incense sticks and
slowdown in discretionary categories due to Covid. Our high single-digit growth estimate is
built on the premise of GCPL launching a breakthrough product in HI and revival in
discretionary spends for hair colour growth.

Godrej Consumer
 International business: Key strategy change required to be executed is reworking the GTM
strategy. While this is being undertaken by the management, in case the desired success is
not achieved then 12% CAGR estimated over FY2125E may not play out.
 Macro-economic and currency risks: GCPL derives 45% of its revenues from its
international business which has high exposure to emerging market economies such as
Indonesia, Africa and LATAM. In the past, Africa witnessed currency depreciation issues,
which continues to be a risk. Indonesia is more stable in terms of currency but poses risks in
terms of macro-economic slowdown.
Ambit’s HAWK Analysis

Over FY15-20, GCPL has improved significantly on our forensic accounting framework and
currently features in D2 (Zone of “Safety”). GCPL scores high on parameters such as
CWIP/gross block, auditor remuneration CAGR, volatility in depr. rate and cum. FCF/median
revenue. On our greatness framework, GCPL features in the ‘Good, but not great’ zone and
ranks above universe (72th percentile) and sector median percentile (64th percentile).
Key contributors to accounting scores
GCPL has consistently moved up on our forensic accounting framework from D8 in FY15 to D2 in
FY20. GCPL scores high on parameters such as CWIP/gross bloc, auditor remuneration CAGR,
volatility in depreciation rate and cum. FCF/median revenue. Relative to other parameters,
GCPL scores low on misc. expenses, contingent liabilities and cash yield.
Our analysis of FY21 data suggests improvement in CFO/EBITDA, volatility in depr. rate and
contingent liabilities. However, certain parameters such as CWIP/gross block and cash yield
have witnessed slight deterioration YoY.
GCPL scores much higher than its median accounting score for its sector (87 th percentile) and
universe (76th percentile).
Exhibit 114: Forensic accounting score contributors Exhibit 115: Forensic score percentile to universe and sector

Godrej Consumer

Godrej Consumer
Comments on evaluation of accounting scores

10:00:10
GCPL’s accounting score has improved considerably over FY15-20 from D8 (Zone of “Darkness”)
in FY15 to D2 (‘Zone of Safety’) in FY20.
(1.0) (1.3) (1.3)
Evolution of greatness score

Our greatness framework evaluates companies on drivers of ‘Greatness’ (e.g. cash generation,
incremental capex, efficiency in capital employed turnover, etc.). GCPL has featured in the
‘Good, but not great’ zone in FY19 and FY20.
March 28, 2022

Godrej Consumer
Exhibit 118: Greatness score contributors
Exhibit 120: Greatness score evolution
Exhibit 119: Greatness score percentile to universe and sector
Exhibit 121: Explanation to our flags
Segment Score Comments

GCPL features in D2, zone of safety on our forensic accounting framework. GCPL scores high on parameters such as CWIP/gross
Accounting GREEN block, auditor remuneration CAGR, volatility in depreciation rate and cum. FCF/median revenue but fares low on parameters such
as misc. expenses, contingent liabilities and cash yield.
GCPL’s near-term growth rates have remained moderate owing to part discretionary portfolios and Covid-led lockdowns across
Predictability AMBER different geographies. With sharp increase in RM prices, we believe revenue growth and margin predictability to be weak in the
near term.
Consensus numbers have largely been cut or downgraded. With recent sharp increase in crude and palm oil prices,

Godrej Consumer
Earnings momentum AMBER

we expect consensus to cut estimates by ~5%.
Financials - Consolidated
Balance Sheet
Year to March FY20 FY21 FY22E FY23E FY24E
Shareholders' equity 1,022 1,023 1,023 1,023 1,023
Reserves & surpluses 77,961 93,367 103,964 115,818 131,683
Total Networth 78,984 94,389 104,987 116,840 132,706
Debt 26,637 7,595 19,000 13,500 8,000
Other long term liabilities 72 69 69 69 69
Deferred tax liability (5,701) (6,378) (6,378) (6,378) (6,378)
Total liabilities 99,992 95,675 117,678 124,032 134,397
Gross block 45,502 46,613 48,225 50,337 52,949
Net block 38,921 37,749 37,230 37,026 37,210
CWIP 570 574 574 574 574
Goodwill 53,393 51,299 51,299 51,299 51,299
Investments 6,720 6,791 6,791 6,791 6,791
Cash & equivalents 7,702 6,722 30,157 37,671 48,833
Debtors 11,573 10,045 11,275 12,562 13,883
Inventory 17,031 17,163 19,264 21,463 23,721
Other current assets 7,193 5,718 6,418 7,150 7,903
Total current assets 43,498 39,647 67,115 78,846 94,339
Current liabilities 41,381 38,514 43,230 48,164 53,230
Provisions 1,729 1,871 2,100 2,340 2,586
Total current liabilities 43,110 40,385 45,330 50,504 55,817
Net current assets 388 (738) 21,784 28,342 38,523
Total assets 99,992 95,675 117,678 124,032 134,397
Income statement
Operating income 99,108 110,286 123,792 137,920 152,428
Gross Profit 56,491 60,992 62,515 71,029 82,311
Employee costs 10,188 11,233 11,389 12,413 13,566
Ad Spends 7,391 7,332 8,170 10,068 11,432
Other expenses 17,481 18,544 19,406 22,154 24,180
EBITDA 21,430 23,883 23,549 26,393 33,133
Depreciation 1,973 2,039 2,131 2,316 2,427
EBIT 19,457 21,844 21,418 24,077 30,706
Interest expenditure 2,174 1,266 1,795 2,113 1,075
Other income 1,123 671 885 974 1,071
Adjusted PBT 18,406 21,248 20,509 22,939 30,702
Tax 2,638 3,595 4,204 4,702 6,294
Net profit 15,768 17,653 16,304 18,236 24,408
% growth 0.5% 15.4% -3.5% 11.8% 33.8%
Extraordinaries (802) (445) - - -
Adjusted Consolidated net profit 15,768 17,653 16,304 18,236 24,408
Reported Consolidated net profit 14,965 17,208 16,304 18,236 24,408

Godrej Consumer
Cash flow statement

EBIT 19,457 21,844 21,418 24,077 30,706
Depreciation 1,973 2,039 2,131 2,316 2,427
Others (298) 461 (910) (1,139) (4)
Tax (2,638) (3,595) (4,204) (4,702) (6,294)
(Incr) / decr in net working capital (2,613) (452) 914 956 981
Cash flow from operations 15,881 20,296 19,349 21,508 27,817
Capex (1,520) (1,639) (1,612) (2,112) (2,612)
(Incr) / decr in investments (2,628) (133) - - -
Others (1,185) (1,383) - - -
Cash flow from investments (5,333) (3,155) (1,612) (2,112) (2,612)
Net borrowings (1,280) (16,194) 11,405 (5,500) (5,500)
Interest paid (2,174) (1,266) (1,795) (2,113) (1,075)
Dividend paid (9,859) - (5,706) (6,383) (8,543)
Others 360 (702) 1,795 2,112 1,075
Cash flow from financing (12,953) (18,162) 5,698 (11,883) (14,043)
Net change in cash (2,405) (1,021) 23,435 7,514 11,162
Closing cash balance 7,702 6,722 30,157 37,671 48,833
Free cash flow 14,361 18,658 17,737 19,396 25,205
Ratio analysis
Gross margin (%) 57.0% 55.3% 50.5% 51.5% 54.0%
EBITDA margin (%) 21.6% 21.7% 19.0% 19.1% 21.7%
EBIT margin (%) 19.6% 19.8% 17.3% 17.5% 20.1%
Net profit margin (%) 15.9% 16.0% 13.2% 13.2% 16.0%
Dividend payout ratio (%) 62.5% 0.0% 35.0% 35.0% 35.0%
Net debt: equity (x) 0.2 0.0 (0.1) (0.2) (0.3)
Working capital days (26.6) (24.4) (24.4) (24.4) (24.4)
Gross block turnover (x) 2.2 2.4 2.6 2.7 2.9
RoCE (%) 18.7% 20.2% 19.4% 22.1% 28.6%
RoE (%) 20.8% 20.4% 16.4% 16.4% 19.6%
Valuation parameters
EPS (`) 15.4 17.3 15.9 17.8 23.9
Diluted EPS (`) 15.4 17.3 15.9 17.8 23.9
Book value per share (`) 77 92 103 114 130
Dividend per share (`) 8.0 - 5.6 6.2 8.4
P/E (x) 44 40 43 38 29
P/BV (x) 9 7 7 6 5
EV/EBITDA (x) 34 29 29 26 20
Price/Sales (x) 7 6 6 5 5
Institutional Equities Team

Research Analysts
Name Industry Sectors Desk-Phone E-mail

Godrej Consumer
Nitin Bhasin - Head of Research Strategy / Accounting / Home Building / Consumer Durables (022) 66233241 nitin.bhasin@ambit.co
Ajit Kumar, CFA, FRM Banking / Financial Services (022) 66233252 ajit.kumar@ambit.co
Alok Shah, CFA Consumer Staples (022) 66233259 alok.shah@ambit.co
Amandeep Singh Grover Mid/Small-Caps / Hotels / Real Estate / Aviation (022) 66233082 amandeep.grover@ambit.co
Ankit Gor Mid-Caps / Chemicals / Textiles / Packaging (022) 66233132 ankit.gor@ambit.co
Ashish Kanodia, CFA Consumer Discretionary (022) 66233264 ashish.kanodia@ambit.co
Ashwin Mehta, CFA Technology (022) 66233295 ashwin.mehta@ambit.co
Bharat Arora, CFA Strategy (022) 66233278 bharat.arora@ambit.co
Dhruv Jain Mid-Caps / Home Building / Consumer Durables (022) 66233177 dhruv.jain@ambit.co
Eashaan Nair Economy / Strategy (022) 66233033 eashaan.nair@ambit.co
Gaurav Jhunjhunuwala Media / Telecom / Oil & Gas (022) 66233227 gaurav.jhunjhunuwala@ambit.co
Jaiveer Shekhawat Mid/Small-Caps (022) 66233021 jaiveer.shekhawat@ambit.co
Jashandeep Chadha, CFA Metals & Mining / Cement (022) 66233246 jashandeep.chadha@ambit.co
Karan Khanna, CFA Mid/Small-Caps / Hotels / Real Estate / Aviation (022) 66233251 karan.khanna@ambit.co
Karan Kokane, CFA Automobiles / Auto Ancillaries (022) 66233028 karan.kokane@ambit.co
Kumar Saumya Chemicals (022) 66233242 kumar.saumya@ambit.co
Namant Satiya, CFA Consumer Staples (022) 66233259 namant.satiya@ambit.co
Nancy Gahlot Strategy / Forensic Accounting (022) 66233149 nancy.gahlot@ambit.co
Pankaj Agarwal, CFA Banking / Financial Services (022) 66233206 pankaj.agarwal@ambit.co
Parth Majithia Strategy / Forensic Accounting (022) 66233149 parth.majithia@ambit.co
Pratik Matkar Banking / Financial Services (022) 66233252 pratik.matkar@ambit.co
Prashant Mittal Technology / Internet (022) 66233295 prashant.mittal@ambit.co
Prashant Nair, CFA Healthcare (022) 66233041 prashant.nair@ambit.co
Satyadeep Jain, CFA Metals & Mining / Cement (022) 66233246 satyadeep.jain@ambit.co
Sumit Shekhar Economy / Strategy (022) 66233229 sumit.shekhar@ambit.co
Vamshi Krishna Utterker Technology (022) 66233047 vamshikrishna.utterker@ambit.co
Vinit Powle Strategy / Forensic Accounting (022) 66233149 vinit.powle@ambit.co
Vivekanand Subbaraman, CFA Media / Telecom / Oil & Gas (022) 66233261 vivekanand.s@ambit.co
Sales
Name Regions Desk-Phone E-mail
Dhiraj Agarwal - MD & Head of Sales India (022) 66233253 dhiraj.agarwal@ambit.co
Bhavin Shah India (022) 66233186 bhavin.shah@ambit.co
Dharmen Shah India / Asia (022) 66233289 dharmen.shah@ambit.co
Abhishek Raichura UK & Europe (022) 66233287 abhishek.raichura@ambit.co
Pranav Verma Asia (022) 66233214 pranav.verma@ambit.co
Shiva Kartik India (022) 66233299 shiva.kartik@ambit.co
Soumya Agarwal India (022) 66233062 soumya.agarwal@ambit.co
USA / Canada
Hitakshi Mehra Americas +1(646) 793 6751 hitakshi.mehra@ambitamerica.co

Singapore
Sundeep Parate Singapore +65 6536 1918 sundeep.parate@ambit.co

Production
Sajid Merchant Production (022) 66233247 sajid.merchant@ambit.co

Sharoz G Hussain Production (022) 66233183 sharoz.hussain@ambit.co
Jestin George Editor (022) 66233272 jestin.george@ambit.co
Richard Mugutmal Editor (022) 66233273 richard.mugutmal@ambit.co
Nikhil Pillai Database (022) 66233265 nikhil.pillai@ambit.co

Godrej Consumer
Godrej Consumer Products Ltd (GCPL IN, BUY)
1,200
1,000
800
600
400
200
0
May-19
Mar-20
May-20
Mar-21
May-21
Mar-22
Mar-19
Jul-19
Jul-20
Jul-21
Sep-19
Sep-20
Sep-21
Nov-20
Nov-19
Jan-20
Jan-21
Nov-21
Jan-22
Godrej Consumer Products Ltd
Source: Bloomberg, Ambit Capital research

March 28, 2022

Godrej Consumer
Explanation of Investment Rating - Our target prices are with a 12-month perspective. Returns stated are our internal benchmark
Investment Rating Expected return (over 12-month)
BUY We expect this stock to deliver more than 10% returns over the next12 month
SELL We expect this stock to deliver less than or equal to 10 % returns over the next 12 months
UNDER REVIEW We have coverage on the stock but we have suspended our estimates, TP and recommendation for the time being NOT
NOT RATED We do not have any forward-looking estimates, valuation, or recommendation for the stock.
POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
Note: At certain times the Rating may not be in sync with the description above as the stock prices can be volatile and analysts can take time to react to development.
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March 28, 2022

Godrej Consumer

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March 28, 2022

Godrej Consumer
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March 28, 2022

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Godrej Consumer

EBITDAM improvement led by Consumer

outperformance.  Even 10bps

38.7 28.9 P/B (x) 8.9 0

7.5 6.7 6.0 5.3 0

Source: Company, Ambit Capital research

March 28, 2022 Ambit Capital Pvt. Ltd. Page 2

Namant Satiya, CFA

March 28, 2022 Ambit Capital Pvt. Ltd. Page 3

Exhibit 2: Domestic share fell till FY17 Exhibit 3: 2%/1%

March 28, 2022 Ambit Capital Pvt. Ltd. Page 4

Growth Journey Business

•Acquisition led growth; •L

Source: Company, Ambit Capital research

Exhibit 6: Renewed strategy together with relevant

Sudhir Sitapati Managing Director and CEO <1

Business Head -Africa, USA & Middle

Source: Company, Ambit Capital research; Note: - Strong;

Exhibit 7: Expecting both domestic and IB to clock double dig

March 28, 2022 Ambit Capital Pvt. Ltd. Page 5

Consol. revenue growth India revenue growth

Exhibit 9: GCPL’s financial performance has been weak comp

GCPL Dabur Marico

Source: Company, Ambit Capital research;

Source: Ambit Capital research

March 28, 2022 Ambit Capital Pvt. Ltd. Page 6

March 28, 2022 Ambit Capital Pvt. Ltd. Page 7

March 28, 2022 Ambit Capital Pvt. Ltd. Page 8

Exhibit 11: Share of India business has Exhibit 12: HI and

Source: Company, Ambit Capital research

March 28, 2022 Ambit Capital Pvt. Ltd. Page 9

Coils 15bn Flat t

Incense sticks 9bn 15-20

March 28, 2022 Ambit Capital Pvt. Ltd. Page 10

Source: Ambit Capital research; Note: Above are estimates basis

Innovation & ad spends drove industry-leading

March 28, 2022 Ambit Capital Pvt. Ltd. Page 11

March 28, 2022 Ambit Capital Pvt. Ltd. Page 12

HI Sales (LHS - Rs mn) YoY Growth %

March 28, 2022 Ambit Capital Pvt. Ltd. Page 13

March 28, 2022 Ambit Capital Pvt. Ltd. Page 14

abhishek.raichura@ambit.co 2022-03-28 Monday 10:00:10

March 28, 2022

Gross Profit 4,063 3,

Considering the sourcing of active for

Source: Forbes India Article, Ambit Capital research

Penetration increase hinges on innovation and higher ad spend

•While focussing • GCPL will need to

Source: Ambit Capital research

March 28, 2022 Ambit Capital Pvt. Ltd. Page 17

Soaps – Sustaining the momentum

March 28, 2022 Ambit Capital Pvt. Ltd. Page 18

March 28, 2022

Hair colour – Post-Covid recovery & penetration growth

March 28, 2022 Ambit Capital Pvt. Ltd. Page 20

Hair colours (RHS - Rs.mn) YoY Growth

Source: Ambit Capital research; Company

Withstanding competition through innovation and sharp pricing

How competition clocked accelerated growth vs GCPL

March 28, 2022

March 28, 2022 Ambit Capital Pvt. Ltd. Page 22

Hygienic Research Institute GCPL - Hair Colour

(Super Vasmol & Streax) 7,500

Optionalities exist in small niche portfolios