3 May 2016

4QFY16 Results Update | Sector: Consumer

Godrej Consumer

BSE SENSEX S&P CNX CMP: INR1,362 TP:INR1,325(-3%) Neutral 25,230 7,747 Bloomberg GCPL IN Equity Shares (m) 340.5 M.Cap.(INRb)/(USDb) 463.6 / 7.0

52-Week Range (INR) 1457 / 1024 1, 6, 12 Rel. Per (%) -2/11/35 Avg Val, INRm 312 Free float (%) 36.7 Financials & Valuation (INR b) Y/E Mar 2016E 2017E 2018E Net Sales 89.6 110.0 126.2 EBITDA 16.1 20.8 23.4 PAT 11.4 14.0 16.1 EPS (INR) 33.6 41.1 47.3 Gr. (%) 26.1 22.3 15.1 BV/Sh (INR) 150.4 179.8 215.4 RoE (%) 23.9 24.9 23.9 RoCE (%) 19.5 21.3 20.6 P/E (x) 40.5 33.1 28.8 P/BV (x) 9.1 7.6 6.3 Estimate change TP change Rating change

Consolidated results in-line; Domestic volume up 6% (+9% including offers) Godrej Consumer’s (GCPL) 4QFY16 consolidated results were in-line with

expectations, with net sales up 8.8% YoY to INR22.7b (vs. our est. of INR22.3b), EBITDA increasing by 16.7% YoY to INR4.4b (vs. our est. of INR4.5b) and adjusted PAT growing by 17.9% YoY to INR3.1b (vs. our est. of INR3.1b). Organic constant currency sales grew 12% YoY. Consolidated gross margin expanded by 150bp to 56.8% and consequently, EBITDA margin expanded by 130bp YoY to 19.4% (vs. our estimate of 20.1%). Staff costs as a percentage of sales increased by 170bp YoY, but was offset by a decline of 160bp YoY in A&P expenses.

Domestic branded business recorded 6% growth in revenue and volume (+9% after offers), with HI revenues up 10%, led by a high single-digit volume growth, Soaps revenue down 6% with a low single-digit volume growth excluding offers and double-digit volume growth including offers, and Hair Colors up 7%.

International sales reported 18% organic growth in constant currency, led by a growth of 26%/31% YoY in Africa and LatAm, respectively.

FY16 consolidated sales, EBITDA and adjusted PAT grew by 8.7%, 20.9% and 29.8%, respectively.

Concall highlights: Management expects the gross margin to continue benefitting from the decline in crude prices for two more quarters. The company has 3-4 months cover for palm oil. For FY17, the management expects an improvement in EBITDA margin, led by gross margin expansion in 1HFY17, cost savings and SoN integration which earns higher margins.

Balance sheet: Working capital increased due to higher receivable days and lower payable days. The RoCE stood at 19.5% in FY16.

Valuation and view: We are raising our est. by 3-4% to factor in the EPS accretion from the SoN acquisition. We have assumed 2x sales as the value of acquisition (Namaste with a similar topline and operating margin of 12% was acquired by Dabur at 1.1x sales, while SoN has a superior operating margin of 22%), and have assumed 2/3rd of the acquisition cost to be incurred upfront, while the remaining will be deferred. At 33.1x FY17E and 28.8x FY18E EPS, the stock trades at a discount to the sector. In our view, the company’s exposure to various geographies, attendant currency risks and relatively lower RoE (mid-20s) justify the discount. Maintain Neutral with a target price of INR1,325 (28x FY18E adjusted EPS).

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Krishnan Sambamoorthy (Krishnan.Sambamoorthy@motilaloswal.com); +91 22 3027 8029 Vishal Punmiya (Vishal.Punmiya@motilaloswal.com); +91 22 3980 4261

Godrej Consumer

3 May 2016 2

Key quarterly charts Exhibit 1: Snapshot of 4Q16 performance Growth (%) Consolidated India International Net Sales 9 7 12 Net Sales – Organic* 9 7 11 Net Sales - Organic Constant Currency* 12 7 18 EBITDA 14 15 14 EBITDA – Organic* 14 15 15 EBITDA - Organic constant currency* 18 15 23 Net Profit 17 12 29 Net Profit w/o exceptional & one-offs 17 12 31

*Excludes Africa’s inorganic sales of INR34m and EBITDA of INR-5m Source: Company, MOSL

Exhibit 2: Snapshot of India business Sales (INR m) 4QFY15 3QFY16 4QFY16 YoY (%) Household Insecticides 5,836 6,290 6,420 10 Soaps 3,479 3,760 3,270 -6 Hair Colours 1,411 1,320 1,510 7 Other Brands 695 1,500 890 28 Total Branded Gross Sales 11,406 12,870 12,090 6 Total Branded (Volume) 6 Total Branded (Volume including offers) 9 Excise duty on Branded Sales 713 790 720 1 Total Branded Net Sales 10,726 12,080 11,370 6 Total Unbranded & Export Gross Sales 610 540 720 18 Total Gross Sales 12,085 13,410 12,810 6 Excise Duty 723 800 730 1 Total Net Sales 11,290 12,610 12,080 7

Source: Company, MOSL

Exhibit 3: Exceptional and One-off items

4QFY16 4QFY15 INR m Consolidated India International Consolidated India International Reported 3,100 2,110 1,010 2,660 1,880 780 Exceptional (post tax) Add: Restructuring Cost in Latin America 20 20 1 1 Net Profit w/o exceptional and one off 3,120 2,110 1,030 2,661 1,880 781

Source: Company, MOSL

Godrej Consumer

3 May 2016 3

Exhibit 4: Consol. Revenues grew 8.8% YoY, in-line with estimates

Source: Company, MOSL

Exhibit 5: HI posted 10% revenue growth primarily led by high single digit volume growth

Source: MOSL, Company

Exhibit 6: Hair Colors posted 7% revenue growth

Source: MOSL, Company

Exhibit 7: Soaps posted 6% revenue decline

Source: MOSL, Company

Exhibit 8: Consol. ad-spends down 160bp YoY

Source: MOSL, Company

30.9

39.2

26.0 26.0 29.8

24.0 22.7 16.8

12.0 9.5 4.6

12.5 8.2 11.1 9.5

5.7 8.8

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Consol Revenue Growth (%)

26 24 25

8

17

9

2

16 11

15 13 15 10

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Home Insecticide revenue growth (%)

27 32

24

37

16 14 9 10 12

12

19

(1)

7

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Hair Colors revenue growth (%)

17 13

3 6

1 2

13 11

15 13

3 2

(6)

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Soaps revenue growth (%)

8.3

11.2

9.

7 10.8

10

.0

13.9

11

.3

11.5

7.

6 13

.3

10.3

9.

8 11.1

12

.0

11.3

10

.7

9.5

4QFY

121Q

FY13

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

16

Consol ASP (%)

Godrej Consumer

3 May 2016 4

Exhibit 9: Consol. gross margin expanded 150bp YoY...

Source: MOSL, Company

Exhibit 10: ...while S/L margins expanded 40bp YoY

Source: MOSL, Company

Exhibit 11: Consol. EBIDTA margin expanded 130bp YoY...

Source: MOSL, Company

Exhibit 12: ..while S/L margins expanded 150bp YoY

Source: MOSL, Company

Exhibit 13: International Sales and EBIDTA snapshot 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Net Sales (INR m) Indian Subcontinent 9,231 10,243 10,447 10,327 9,775 10,912 11,671 11,335 10,948 11,849 12,607 12,078 International 8,030 9,410 9,350 9,050 8,890 9,200 10,290 9,100 10,130 10,720 11,070 10,780 Africa 2,140 2,500 2,910 2,460 2,500 2,740 3,790 2,820 3,140 3,360 4,040 3,380 Latin America 1,300 1,540 1,680 1,510 1,260 1,470 1,690 1,750 1,560 1,730 1,960 1,640 Megasari 3,190 3,610 3,430 3,440 3,490 3,660 3,900 3,400 3,530 3,570 3,790 3,940 Keyline 1,150 1,380 1,110 1,150 1,640 1,330 910 1,130 1,550 1,490 1,040 1,330 Total 17,261 19,653 19,797 19,377 18,665 20,112 21,961 20,435 21,078 22,569 23,677 22,858 EBITDA Margin (%) Indian Subcontinent 14.6 17.3 17.0 18.8 13.5 18.5 18.7 20.6 15.5 20.2 19.4 22.0 International 11.2 12.6 13.8 15.4 12.1 14.9 16.6 15.8 14.1 15.4 19.1 16.3 Africa 13.0 13.0 18.0 15.0 14.0 14.6 18.0 12.0 13.0 15.0 18.0 15.0 Latin America 3.0 7.0 9.0 20.0 4.0 13.0 11.7 21.0 9.0 9.1 20.0 19.0 Megasari 15.0 17.0 16.0 18.0 15.0 18.0 19.3 19.0 21.0 23.8 24.0 21.0 Keyline 9.0 10.0 6.0 9.0 9.0 9.0 8.3 8.0 9.0 9.2 8.0 8.0 Total 13.0 15.0 15.5 17.2 12.8 16.4 17.7 18.5 14.8 17.9 19.2 19.3

*International total sales for 4QFY16 also includes sales of INR490m from Others (Sri Lanka, Bangladesh and ME) Source: Company, MOSL

53.6

51

.3

51.9

54.7

54

.0

53.5

53

.7

53.3

52

.0

52.6

52

.0

53.6

55

.3

56.3

56

.9

58.1

56

.8

4QFY

121Q

FY13

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

16

Consol Gross Margin (%)

51.1

47.3

49.2

52.3

52.3

51.6

52.3

51.6

51.7

52.0

51.8

55.1

56.4

58.4

58.6

59.4

56.8

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

S/L Gross Margin (%)

18.6

14

.3

15.3

16.6

16

.0

13.0

15

.1

15.5

17.4

12

.7 16

.1 17

.5

18.1

14

.9

18.0

19.4

19

.4

4QFY

121Q

FY13

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

16Consol EBITDA Margin (%)

19.5

14

.9 16

.3

16.4

18.3

14

.5

17.6

17

.2 19

.8

13.5

18

.6

18.1

20.6

15

.1

20.0

19

.9

4QFY

121Q

FY13

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

16

S/L EBITDA Margin (%)

Godrej Consumer

3 May 2016 5

Consol sales up 8.8% and EBITDA margins expanded 130bps YoY Consolidated sales grew 8.8% YoY to INR22.7b (est.INR22.3b). Consol. organic

constant currency sales grew 12% led by 18% growth in International and 7% growth in Indian business.

Gross margin expanded 150bp to 56.8% led by benign input costs. With EBITDA margins expanding by 130 bps YoY to 19.4% (estimate 20.1%) in 4QFY16 the gross margins gains flowed through to the EBITDA level. Other expenditure was flattish as a percentage to sales YoY and while staff costs grew by 170 bp YoY to sales this was offset by decline of 160 bp YoY on the A&P to sales front. Staff costs were up by 30% YoY on absolute basis while A&P costs declined by 6.7% YoY. EBITDA grew 16.7% YoY to INR4.4b. (est. INR4.5b).

INDIAN Subcontinent: Sales up 7%; EBIDTA margins expanded 160bps YoY India business sales grew 7% YoY to INR12.1b. Household Insecticides (HI)

posted 10% sales growth led by high single digit volume growth while Hair Colors witnessed sales growth of 7% due to recovery in powder hair colour sales and volume led double digit sales growth of Godrej Expert Riche Crème. Soaps revenues declined 6% due promotion schemes while volume growth was low single digit without offers and double digit with offers in this segment

Standalone EBITDA margins expanded 150bp YoY to 22.0% as gross margin benefits (up 40bp YoY) and lower A&P costs (down 310bp YoY) offset 30 bps increase in staff costs and 180 bps increase in other expenses. Thus, EBITDA posted a 14.2% YoY growth on stand-alone basis to INR2.7b.

Standalone PAT grew 12.3% to INR 2.1b. International business (47% of Consol. Sales): Organic constant currency sales growth 18%; organic EBITDA margin expanded 40bps YoY International business sales grew 11% YoY to INR10.8b, with a 18% organic

constant currency growth. EBITDA grew 15% to INR1.6b with 40bps YoY operating margin expansion to 15.0%.

Indonesia (Megasari, 37% of Int. sales) posted 16% increase in sales to INR3.9b. On constant currency basis, sales were up 13%. EBITDA margins were up 170bps YoY led by benign commodity prices, calibrated price hikes and maximization of marketing investments.

Africa (31% of Int. Sales, includes Rapidol, Kinky, Tura and Darling Group) reported sales growth of 20% (constant currency growth of 26%) to INR3.4b. EBITDA margins were up 180 bps YoY due to calibrated price increases and cost control.

Latin America (15% of Int. sales) sales declined 16% YoY (but grew 31% in constant currency) to INR1.6b. EBITDA margins declined 190bps YoY due higher marketing spend in Argentina and Chile.

Europe (Keyline, 12% of Int. sales) posted sales growth of 18% and 15% in constant currency terms to INR1.3b.

Godrej Consumer

3 May 2016 6

Earnings Call takeaways India business Operating environment remained subdued similar to 3QFY16 Urban and rural sales growth similar pace. In 3QFY16 rural had grown slightly

faster YoY compared to urban. Rural growth challenges Maharashtra, Andhra Pradesh and UP, areas which are also affected recently by drought.

Household Insecticides attained with highest ever market share. March and April however have shown weak HI sales due to hotter than usual summer

130 bps impact on standalone gross margins due to consumer offers mainly in soaps. Some A&P was diverted towards promotions. No impact of Patanjali on category or category promotion in case of soaps

In Hair colour Godrej Expert Rich Crème continues to gain market share to 9% of the overall Hair Colour market. Only 14% penetration in this category. However Powder sales growth has been affected by rural slowdown. Have not lost market share in the past 12 months in Hair Colour category.

New launches in 4QFY15 were towards the beginning of that quarter whereas 4QFY16 witnessed launches towards the end resulting in relatively lower A&P YoY

Aer room freshener is now the No 1 brand in the Home Spray Category B Blunt premium hair care brand has been launched in modern trade Robust pipeline of innovation going forward as well Focusing on strengthening rural penetration with strategies like split lines In soaps price decrease are more tactical in nature. The attempt is to gain

market share as covered costs are lower than replacement rates. Cinthol has grown over 15% in the past 2 years. Regaining some lost share in Godrej No 1 in the past 12 months

Employee costs increased due to higher proportion of variable pay in this quarter

For the full year volume growth in India was 11% with offers and 9% without offers

4QFY16 saw further slowdown in soaps and detergents categories compared to 3QFY16

Non soaps price increases were 2-3% in FY16 Expect benefit of crude fall on gross margins for couple more quarters. For palm

oil they have 3-4 months cover International business Hit and Stella did well in Indonesia. Did well in Indonesia aided by low base but

also due to improved distribution and advertising. Going forward innovation will also pick up leading to continuing growth. Reach 110,000 outlets directly while other large players reach 250,000 and so potential to grow is high. FMCG sector actually declined by 6% in Indonesia last year. Margins may be a challenge in this geography but management is hoping to maintain margins through cost savings and healthy sales growth

Africa sales growth led by Darling business LatAm hair colour brands gain market share Hopeful of maintaining strong Indonesia performance going forward

Godrej Consumer

3 May 2016 7

Entering into large markets like Nigeria and Tanzania in Household Insecticides segment

SoN initial manufacture in Nigeria and Tanzania before moving to Ghana and subsequently to South Africa

Among the smaller markets, Bangladesh has been struggling as there has been rising competition in coils

Others Hopeful of recovery in demand in H2FY17 due to healthy expected monsoons

and government schemes yielding fruit. Urban is sustaining reasonably but rural growth has been declining

1HFY17 will see some more gross margin increase for full year still hopeful for over FY16 due to cost savings and SoN integration where margins are higher at around 22%

Increase in receivables in FY16 will be addressed in FY17. Lower creditors were because of lower commodity prices

Project Pie: Cost savings of INR750-800m on full year basis; launched in Indonesia as well

Project Iceberg – Savings of INR100-120m on full year basis

Valuation and view We revise our estimates upwards by 3-4% to bake in EPS accretion from SoN

acquisition. We have assumed 2x sales as value of acquisition (Namaste with a similar topline and operating margin of 12% was acquired by Dabur at 1.1x sales; SoN has superior 22% operating margins) and assumed 2/3rd of acquisition cost to be incurred upfront and the remaining to be deferred.

At 33.1x FY17E and 28.8x FY18E EPS, the stock trades at a discount to the sector. Exposure to various geographies, with attendant currency risks and relatively lower RoE (mid-20’s) justify the discount, in our view. Maintain Neutral with a target price of INR1,325 (28x FY18E Adj. EPS).

Exhibit 14: We bake in 3-4% EPS increase due to SoN acquisition INR M Old New Change FY17E FY18E FY17E FY18E FY17E FY18E Sales 103,164 118,438 110,014 126,188 6.6% 6.5% EBITDA 19,295 21,651 20,777 23,444 7.7% 8.3% PAT 13,559 15,506 13,992 16,101 3.2% 3.8%

Source: Company, MOSL

Godrej Consumer

3 May 2016 8

Exhibit 15: GCPL consumer P/E (x)

Source: Company, MOSL

Exhibit 16: GCPL consumer P/E premium vs. Sensex

Source: Company, MOSL

Exhibit 17: Valuation Matrix of coverage universe

Company Reco Price Mkt Cap

(USD M) EPS Growth YoY (%) P/E (x) EV/EBITDA (x) ROE (%) Div. (%)

(INR) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY16E Consumer Asian Paints Neutral 872 12,580 27.4 13.0 9.3 46.1 40.8 37.3 31.5 27.4 24.9 35.3 1.1 Britannia Buy 2,847 5,140 49.9 17.5 13.9 39.7 33.8 29.6 27.6 22.8 19.5 57.8 0.9 Colgate Neutral 852 3,488 6.4 11.6 13.6 39.0 34.9 30.7 23.9 21.7 19.5 72.1 1.8 Dabur* Neutral 290 7,681 17.5 15.5 13.8 40.7 35.2 31.0 32.8 28.2 24.9 33.6 0.8 Emami* Buy 976 3,332 14.0 23.6 16.9 40.0 32.3 27.7 32.9 26.6 22.6 40.3 1.1 Godrej Consumer Neutral 1,362 6,977 26.1 22.3 15.1 40.5 33.1 28.8 30.0 23.5 20.6 23.9 0.7 GSK Consumer Buy 5,822 3,685 20.0 13.0 10.7 35.0 30.9 28.0 24.7 21.6 18.9 30.5 1.1 Hind. Unilever Neutral 851 27,689 5.0 10.9 14.2 46.3 41.7 36.6 31.9 29.2 25.8 110.3 2.0 ITC Buy 317 38,325 2.7 13.1 14.0 25.7 22.7 20.0 16.8 15.0 13.3 30.4 2.5 Jyothy Labs Buy 301 820 26.4 -8.7 12.6 33.9 37.1 33.0 27.9 23.5 20.9 19.6 1.3 Marico* Neutral 255 4,952 23.7 14.6 16.6 46.4 40.5 34.7 30.7 27.2 23.2 36.2 1.3 Nestle Neutral 5,605 8,132 -7.3 -10.7 18.4 46.8 52.3 44.2 32.8 29.6 24.7 40.9 0.9 Page Industries Buy 12,629 2,120 21.0 25.0 31.3 59.4 47.5 36.2 37.1 30.1 23.3 46.9 0.7 Pidilite Inds. Buy 597 4,608 48.5 10.2 15.1 40.2 36.4 31.7 25.1 22.1 19.1 29.8 0.7 P&G Hygiene Buy 6,441 3,146 21.0 10.6 19.9 50.0 45.2 37.7 33.0 28.6 23.3 31.4 1.0 Radico Khaitan Buy 90 179 -3.0 31.5 28.9 14.0 10.6 8.2 9.5 7.8 6.4 9.5 1.1 United Spirits Buy 2,450 5,358 LP 76.9 46.6 85.3 48.2 32.9 39.8 28.8 21.5 48.1 0.0 Retail Jubilant Foodworks Buy 1,149 1,133 6.8 48.0 41.2 63.5 42.9 30.4 25.6 18.4 13.6 16.1 0.3 Shopper's Stop Neutral 395 489 35.5 40.3 38.5 59.7 42.6 30.7 14.9 12.5 10.3 6.9 0.3 Titan Company Neutral 361 4,826 -8.4 17.6 15.2 42.5 36.1 31.4 32.0 27.0 23.2 21.0 0.7

Note: For Nestle FY15 means CY14 Source: Company, MOSL

32.8

38.7

25.6

10.8

8.0

18.0

28.0

38.0

Apr-

06

Jul-0

7

Oct

-08

Jan-

10

Apr-

11

Jul-1

2

Oct

-13

Jan-

15

Apr-

16

PE (x) Peak(x) Avg(x) Min(x)

99.7 55.4

-60

0

60

120

180

Apr-

06

Jul-0

7

Oct

-08

Jan-

10

Apr-

11

Jul-1

2

Oct

-13

Jan-

15

Apr-

16

Godrej Consumer PE Relative to Sensex PE (%)LPA (%)

Godrej Consumer

3 May 2016 9

Financials and Valuation

Income Statement

(INR Million)

Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E Net Sales 36,430 48,662 64,163 76,024 82,764 89,572 110,014 126,188 Change (%) 78.5 33.6 31.9 18.5 8.9 8.2 22.8 14.7 Cost of Goods Sold 17,488 23,156 30,216 35,547 38,415 38,455 47,275 55,068 Gross Profit 18,942 25,506 33,947 40,477 44,348 51,116 62,739 71,121 Margin (%) 52.0 52.4 52.9 53.2 53.6 57.1 57.0 56.4 Total Expenditure 29,970 40,108 54,339 64,457 69,111 73,437 89,237 102,745 EBITDA 6,460 8,554 9,824 11,568 13,653 16,135 20,777 23,444 Change (%) 58.2 32.4 14.8 17.7 18.0 18.2 28.8 12.8 Margin (%) 17.7 17.6 15.3 15.2 16.5 18.0 18.9 18.6 Depreciation 499 644 770 819 908 1,031 1,018 1,117 Int. and Fin. Charges 519 658 775 1,074 1,002 1,002 1,435 1,455 Interest Income 268 398 350 285 284 284 405 577 Other Income-rec. 408 122 328 342 632 642 502 552 PBT 6,118 7,992 8,957 10,302 12,659 15,028 19,230 22,001 Change (%) 45.7 30.6 12.1 15.0 22.9 18.7 28.0 14.4 Margin (%) 16.8 16.4 14.0 13.6 15.3 16.8 17.5 17.4 Tax 1,298 2,279 1,919 2,167 2,861 3,191 4,385 5,027 Tax Rate (%) 21.3 28.3 20.0 20.4 21.5 21.2 23.6 23.6 PAT 4,816 5,732 7,165 8,199 9,936 11,837 14,692 16,801 Change (%) 41.8 19.0 25.0 14.4 21.2 19.1 24.1 14.4 Margin (%) 13.2 11.8 11.2 10.8 12.0 13.2 13.4 13.3 Minority interest 0 245 493 596 693 395 700 700 Group Adjusted PAT 4,661 5,304 6,506 7,439 9,079 11,442 13,992 16,101 Non-rec. (Exp.)/Income 331.1 2,001.7 1,289.0 -5.7 -171.7 -248.6 0.0 0.0 Reported PAT 5,147 7,488 7,961 7,597 9,071 11,194 13,992 16,101 Balance Sheet

Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E Share Capital 324 340 340 340 340 340 340 340 Reserves 16,928 27,699 32,790 37,414 42,767 50,007 59,301 70,704 Minority Int 0 882 2,095 2,251 1,620 842 1,542 2,242 Networth 17,252 28,922 35,226 40,005 44,727 51,190 61,183 73,286 Loans 20,032 18,769 24,563 23,734 27,172 31,822 40,422 40,422 Deferred Liability 86 -5 -140 -203 -312 439 593 765 Capital Employed 37,369 47,686 59,649 63,536 71,587 83,450 102,197 114,473 Gross Block 19,148 20,403 21,575 22,511 22,890 24,340 29,090 33,840 Less: Accum. Depn. 3,775 4,940 5,699 6,821 7,821 8,698 9,716 10,833 Net Fixed Assets 15,373 15,464 15,876 15,689 15,069 15,643 19,375 23,008 Capital WIP 154 376 1,409 1,671 2,246 2,246 2,246 2,246 Goodwill 15,404 21,454 29,085 35,525 40,441 45,741 50,741 50,741 Non Curr Investments 0 0 0 343 343 343 343 343 Current Investments 0 635 1,212 1,020 1,514 1,020 1,020 1,020 Currents Assets 13,774 22,048 29,230 28,751 31,464 38,396 48,094 57,196 Inventory 4,394 7,839 10,471 10,821 10,717 13,073 16,276 18,669 Account Receivables 3,840 4,725 7,288 7,321 8,046 11,179 12,056 12,100 Cash and Bank Balance 2,269 5,764 7,476 7,048 8,942 10,178 15,255 21,302 Loans and Advances 3,149 3,645 3,956 3,536 3,682 3,851 4,369 4,960 Other Current Assets 122 75 39 25 76 115 138 165 Curr. Liab. & Prov. 7,335 12,290 17,162 19,462 19,489 19,939 19,621 20,081 Account Payables 3,331 7,702 10,348 12,344 10,869 10,828 11,000 12,000 Other Liabilities 3,915 4,160 6,388 6,731 7,886 8,378 7,887 7,348 Provisions 89 428 426 387 734 734 734 734 Net Current Assets 6,439 9,757 12,068 9,289 11,974 18,457 28,474 37,115 Net Assets 37,370 47,686 59,649 63,536 71,587 83,450 102,198 114,472 E: MOSL Estimates

Godrej Consumer

3 May 2016 10

Financials and Valuation

Ratios

Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E Basic (INR)

EPS 14.4 15.6 19.1 21.9 26.7 33.6 41.1 47.3 Cash EPS 15.9 17.5 21.4 24.3 29.3 36.7 44.1 50.6 BV/Share 53.3 85.0 103.5 117.5 131.4 150.4 179.8 215.4 DPS 5.0 1.7 5.0 5.3 7.1 9.7 11.8 11.8 Payout (%) 35.0 11.2 26.2 24.0 26.7 28.9 28.7 24.9 Valuation (x)

P/E 94.5 87.4 71.2 62.3 51.1 40.5 33.1 28.8 Cash P/E 85.4 77.9 63.7 56.1 46.4 37.1 30.9 26.9 EV/Sales 12.6 9.8 7.5 6.3 5.8 5.4 4.4 3.8 EV/EBITDA 71.0 55.7 48.9 41.5 35.3 30.0 23.5 20.6 P/BV 25.5 16.0 13.2 11.6 10.4 9.1 7.6 6.3 Dividend Yield 0.4 0.1 0.4 0.4 0.5 0.7 0.9 0.9 Return Ratios (%)

RoE 34.8 23.0 20.3 19.8 21.4 23.9 24.9 23.9 RoCE 25.2 18.6 16.9 17.5 18.9 19.5 21.3 20.6 Working Capital Ratios

Debtor (Days) 38 35 41 35 35 46 40 35 Asset Turnover (x) 2.3 3.1 3.7 4.4 4.8 5.0 5.1 5.0

Leverage Ratio

Debt/Equity (x) 1.2 0.6 0.7 0.6 0.6 0.6 0.7 0.6

Cash Flow Statement

(INR Million) Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E OP/(Loss) before Tax 6,617 8,637 9,727 11,121 13,567 16,059 20,249 23,117 Net interest 111 536 447 732 370 360 933 904 Direct Taxes Paid -1,298 -2,279 -1,919 -2,167 -2,861 -3,191 -4,385 -5,027 (Inc)/Dec in WC -3,654 176 -598 2,351 -791 -5,247 -4,939 -2,594 CF from Operations 1,776 7,069 7,657 12,036 10,285 7,980 11,858 16,399 Extraordinary Items 331 2,002 1,289 -6 -172 -249 0 0 Inc in FA -15,144 -1,478 -2,205 -1,197 -955 -1,450 -4,750 -4,750 Free Cash Flow -13,368 5,592 5,452 10,839 9,330 6,530 7,108 11,649 Pur of Investments 670 0 0 -343 0 0 0 0 Goodwill -12,285 -6,050 -7,630 -6,440 -4,916 -5,300 -5,000 0 CF from Investments -26,429 -5,526 -8,546 -7,986 -6,043 -6,998 -9,750 -4,750 Issue of Shares 15 17 0 0 0 0 0 0 Inc in Debt 19,663 -1,263 5,794 -829 3,437 4,650 8,600 0 Dividend Paid -1,966 -596 -1,983 -2,091 -2,835 -3,870 -4,698 -4,698 Other Income 676 520 678 627 915 926 907 1,129 Interest Paid -519 -658 -775 -1,074 -1,002 -1,002 -1,435 -1,455 Other Item 6,001 3,931 -1,113 -1,112 -2,863 -450 -405 -578 CF from Fin. Activity 23,870 1,951 2,602 -4,478 -2,347 254 2,968 -5,602 Inc/Dec of Cash -783 3,495 1,712 -428 1,894 1,236 5,077 6,047 Add: Beginning Balance 3,052 2,269 5,764 7,476 7,048 8,942 10,178 15,255 Closing Balance 2,269 5,764 7,476 7,048 8,942 10,178 15,255 21,302 E: MOSL Estimates

Godrej Consumer

3 May 2016 11

Corporate profile Exhibit 1: Sensex rebased

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%)

Dec-15 Sep-15 Dec-14 Promoter 63.3 63.3 63.3 DII 1.8 1.7 1.9 FII 28.7 28.7 29.0 Others 6.3 6.3 5.9

Note: FII Includes depository receipts Source: Capitaline

Exhibit 3: Top holders Holder Name % Holding National Westminster Bank PLC as Depositary of First State Asia Pacific Leaders Fund a Sub Fund of F

2.5

Baytree Investments (Mauritius) Pte Limited 2.5 Arisaig Partners (Asia) Pte Limited A/c Arisaig India Fund Limited

2.0

Aberdeen Global Indian Equity Limited 1.9 LIC of India 1.1

Source: Capitaline Exhibit 4: Top management

Name Designation

Adi Godrej Chairman & Wholetime Director

VIVEK GAMBHIR Managing Director V Srinivasan CFO & Company Secretary Nisaba Godrej Executive Director

Source: Capitaline

Exhibit 5: Directors Name Name Aman Mehta Bharat Doshi D Shivakumar Jamshyd N Godrej Nadir Godrej Narendra Ambwani Omkar Goswami Tanya Arvind Dubash Ireena Vittal

*Independent

Exhibit 6: Auditors Name Type Kalyaniwalla & Mistry Statutory P M Nanabhoy & Co Cost Auditor

Source: Capitaline

Exhibit 7: MOSL forecast v/s consensus EPS (INR)

MOSL forecast

Consensus forecast Variation (%)

FY16 33.6 33.2 1.2 FY17 41.1 39.7 3.6 FY18 47.3 46.4 1.9

Source: Bloomberg

Company description GCPL is the second largest player in the INR90b Toilet Soaps category, with a market share of ~10%. Company is the market leader in INR10b hair dye/color segment, with a market share of ~35%. Its international business now constitutes 36% of consolidated revenue.

Godrej Consumer

3 May 2016 12

Disclosures This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company (ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.

MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate investors on investments in such business . The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on twin parameters of performance & profitability of MOSt. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412

Pending Regulatory inspections against Motilal Oswal Securities Limited: SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry and adjudge violation of SEBI Regulations; MOSL replied to the Show Cause Notice whereby SEBI granted us an opportunity of Inspection of Documents. Since all the documents requested by us were not covered we have requested to SEBI vide our letter dated June 23, 2015 to provide pending list of documents for inspection.

List of associate companies of Motilal Oswal Securities Limited -Click here to access detailed report Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues Disclosure of Interest Statement GODREJ CONSUMER PRODUCTS Analyst ownership of the stock No Served as an officer, director or employee No A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes

Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.

In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Varun Kumar Kadambari Balachandran Varun.kumar@motilaloswal.com kadambari.balachandran@motilaloswal.com Contact : (+65) 68189232 (+65) 68189233 / 65249115 Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025 Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com