| Godrej Consumer Products Limited | ||
| Rated amount enhanced | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of Godrej Consumer Products Ltd (GCPL).
The rating continues to reflect the strong business risk profile of GCPL backed by its diversified revenue profile across geographies (mainly India, Indonesia, Africa, the US, Latin America, and the Middle East) and product segments (home care and personal care). The company has strong brands with leadership position across various segments in all the countries it operates in. The rating also factors the robust financial risk profile of GCPL due to sizeable cash accrual, prudent cash policy and strong debt protection metrics.
These strengths are partially offset by the macroeconomic, geopolitical and currency risks in the overseas operations, exposure to intense competition and susceptibility of the operating margin to changes in raw material prices. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of GCPL and all its subsidiaries as they are in the same business. The CRISIL Ratings’ adjusted networth differs on account of amortisation of goodwill over 5-10 years.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Diversified revenue profile Revenue is diversified across geographies and product segments. In fiscal 2022, 56% of the revenue was generated from India and 44% from overseas. Africa (along with the USA and the Middle East) and Indonesia accounted for 25% and 14%, respectively, of total revenue. Revenue is also distributed across product segments. Personal care and home care accounted for 58% and 39%, respectively, in fiscal 2022. GCPL has a demonstrated track record of acquiring strong local brands and generating synergies by combining operations of the acquired entities to drive scale and profitability. Consequently, the proportion of revenue from overseas operations increased to 44% in fiscal 2022 from 23% in fiscal 2010.
In the first nine months of fiscal 2023, businesses in India witnessed growth of 10% led by strong growth in the personal care segment. However, the Indonesia business saw a decline of 7% impacted by lower demand and adverse macro-economic factors. Africa business saw a double-digit sales growth with continued momentum despite the discretionary nature of products. While the India businesses registered heathy operating margin of over 20%, the operating margin in Indonesia and Africa business remained lower around 16% and 10% respectively. In fiscal 2023, revenue growth is likely to be supported by strong brands, focus on category development and traction from previously launched products. The operating margin is likely to remain moderate despite cost optimisations, strong brands and established market position.
Strong brands with market leadership across segments and geographies GCPL has a strong brand portfolio in India and overseas. The company is a market leader in the household insecticide and hair colour segments and the second largest player in the soaps category in India. It has a leading market position in all the segments it operates in - household insecticides, air fresheners and wet tissues in Indonesia and dry hair extensions (hair braids) and ethnic hair colour segments in Africa. The dominant leadership position across various segments provides pricing power in those segments, thus helping the company to maintain profitability.
Moreover, the company has strong focus on innovation, which has led to healthy contribution to the overall growth through new launches. Godrej’s strong brand with differentiated price points will support revenue over the medium term. GCPL has successfully cross pollinated some products across markets and has launched new products in the insecticide and hair colour segments in India and overseas. The new launches are expected to drive growth over the medium term. Ability to successfully launch and scale up revenue from new products across geographies will be a key monitorable.
Robust financial risk profile with sizeable cash accrual, prudent cash policy and strong debt protection metrics GCPL has a robust financial risk profile as reflected in the CRISIL Ratings-adjusted interest coverage ratio of 20.7 times in fiscal 2022 compared with 17.9 times in fiscal 2021. It turned net cash positive during fiscal 2022 and is expected to continue to be net cash positive over the medium term. The capital structure has improved as reflected in gearing of 0.03 times as on September 30, 2022 against 0.23 times as on the end of the previous fiscal.
Strong cash accrual is expected in fiscal 2023 against minimal capital expenditure (capex) plans and no acquisition planned over medium term. Also, the company maintains adequate cash and bank balances, which further strengthens the financial risk profile. Cash and equivalents as on September 30, 2022 stood at Rs 1,671 crore.
Weaknesses: Exposure to macroeconomic, geopolitical and currency risks in overseas markets GCPL has presence in Asia, Africa and Latin America. These economies may face macroeconomic challenges as seen in the past, which can limit growth in overseas operations of GCPL. Also, geopolitical events such as change in government and local unrest could also affect operations. This risk in Africa has been mitigated by diversified presence countries in south, west and east Africa. Currency fluctuations can harm profitability of the overseas operations, which have been volatile over the past few years. CRISIL Ratings will continue to monitor developments in these geographies for any adverse impact on operations.
Susceptibility to intense competition and fluctuation in raw material prices Palm oil and crude derivatives (chemicals) are the major raw materials. Over the past few years, a decline in raw material prices had helped improve operating profitability. The CRISIL Ratings-adjusted operating margin was 19.6% in fiscal 2022, against 21.8% in fiscal 2021 on account of higher raw material prices.
Also, the Indian FMCG industry has both organised and unorganised players across various segments and product categories. GPCL continues to face stiff competition from existing as well as new entrants in the segments it operates in. That said, product launches and cross-pollination of products, have helped the company maintain its market share and operating profitability. |
Liquidity: Strong GCPL is expected to generate healthy cash accrual of over Rs 700 crore (assuming Rs 1200 crore annual dividend payout) and maintain cash of at least Rs 1,500 crore against debt obligation of around Rs 400 crore in fiscal 2023. Liquidity is also supported by unutilised bank limits of about Rs 580 crore. The healthy cash accrual will be driven by steady revenue growth and a stable operating margin over the medium term.
ESG profile of GCPL CRISIL Ratings believes that the Environment, Social, and Governance (ESG) profile of GCPL supports its already strong credit risk profile. The fast-moving consumer goods sector has a moderate environmental and social impact, driven by its raw material sourcing strategies, waste intensive processes, and its direct impact on the health and wellbeing of customers.
GCPL has focused on mitigating its environmental and social risks over the past several years.
Key ESG highlights of GCPL:
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Rating Sensitivity Factors Downward factors
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About the Company GCPL, part of the Godrej group, was formed in 2001 when the personal care segment of Godrej Soaps Ltd was demerged into a separate entity. GCPL's standalone business includes household insecticides, soaps, hair colourants, air fresheners and liquid detergents. Its manufacturing plants are in Assam, Himachal Pradesh, Jammu and Kashmir, Madhya Pradesh, Meghalaya, Puducherry, Sikkim and Tamil Nadu. Over the past 10 years, GCPL has made several overseas acquisitions to build its presence in key emerging markets outside India, with focus on Asia, Africa and Latin America.
For nine months ended December 31, 2022, profit after tax (PAT) was Rs 1,250 crore and total income Rs 10,116 crore as compared with Rs 1,420 crore and Rs 9,361 crore respectively for the corresponding period of the previous fiscal. |
Key Financial Indicators^
^As per analytical adjustments made by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
*Dissolved with effect from November 21, 2022 |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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