Rating Rationale

Strengths
* Diversified Revenue Profile
GCPL's business risk profile derives benefit from the diversity of revenue across geographies and product segments. In fiscal 2018, the company generated 54% of the topline from India and 46% from abroad. Africa and Indonesia are the major international geographies which contribute to 22% and 14% of total revenues respectively. Revenue is also distributed across product segments with household insecticides (home care), personal care and hair care contributing 30%, 17% and 31% respectively. The growth in revenue from international operations has been driven primarily through acquisitions. The company has demonstrated track record of acquiring strong local brands and generating synergies by combining operations of the acquired entities to drive scale and profitability. The proportion of revenue from international operations has increased from 23% in fiscal 2010 to 46% in fiscal 2018. The operating profitability of international operations has grown from 12% in fiscal 2010 to more than 17% in fiscal 2018.

* Strong brands with market leadership across segments and geographies
GCPL has a portfolio of strong brands in India and international markets. GCPL holds market leadership position in household insecticide and hair colour segments in India and is the second largest player in the soaps category. The company is a market leader in all the segments in Indonesia where it operates in - household insecticide, air refresheners and wet tissues. In Africa, GCPL is the market leader in dry hair extensions (hair braids) and ethnic hair colour segments and with the acquisition of Strength of Nature in fiscal 2017, the company is expected to grow its market share in the wet hair care segment as well. The dominant leadership position across various segments provides the company pricing power in those segments which helps the company to maintain its profitability.

Further, GCPL also has strong focus on innovation which has led to new launches contributing a healthy share to the overall growth. The company has successfully cross pollinated products across markets, for example, Aer refreshner in India was taken from Indonesian portfolio where it is sold under the Stella brand. GCPL has made new launches in insecticides segment in India and hair colour segment in Indonesia, as well as launched new products from SON portfolio in Africa. The new launches either through innovation or cross-pollination is expected to be the primary growth drivers over the medium term. The ability of the company to successfully launch and scale up revenues from new products across geographies would be a key rating sensitivity factor.

* Healthy financial risk profile with high cash accruals, prudent cash policy and strong debt protection metrics
GCPL has healthy financial risk profile as reflected in the interest cover of 12.04 times, net debt to EBITDA of 0.75 time as on March 31, 2018. The company is also expected to generate healthy cash accruals of over Rs.1000 crore and maintain cash of at least Rs.1000 crore on the balance sheet against repayments of about Rs1,500 crore over next 2 fiscals. The healthy cash accruals would be driven by steady revenue growth and stable operating margins over the medium term. As a policy the company maintains high cash and bank balances of at least equal to 1 year repayment which further strengthens GCPL's financial risk profile. As on March 31, 2018 GCPL had cash and cash equivalents of Rs 1921 crore. The company had a gross debt to EBITDA of 1.7 time as on March 31, 2018 which is expected to remain below 2.25 times over the medium term.

Weaknesses
* Debt funded acquisitive nature of expansion
Over the past few years, the company has grown through acquisition, especially in the international markets. Most of these acquisitions have been debt funded with the debt guaranteed by the Indian entity. Some of the major acquisitions have been Godrej Sara Lee Limited in India, Megasari Group in Indonesia and Darling group in Africa. Recently in fiscal 2017 the company acquired Strength of Nature (SON) for a consideration of about Rs.2100 crore. The company has a clear philosophy of acquiring brands in home care, personal care and hair care segments and only in the geographies where it is present right now. The ability of the company to create value from any large debt funded acquisition in a timely manner will continue to be a key rating sensitivity factor.

* Macroeconomic, geopolitical and currency risks in overseas geographies
Outside India, GCPL has presence in Asia, Africa, Latin America and UK. The economies in these continents might face macroeconomic growth challenges as seen in Indonesia, Argentina and UK which can limit the growth in overseas operations. Also there is a risk of geopolitical events ' change in government, unrest etc. to affect the operations. GCPL has mitigated this risk in Africa to some extent by its presence across countries in South, West and East Africa. Currency fluctuations can harm the profitability of the overseas operations which have been volatile over the last few years. Considering the geographical diversity of GCPL with operations across Africa, Latin America and Indonesia, the overall growth and profitability is expected to remain strong over the medium term. Nonetheless, CRISIL would continue to monitor developments in these geographies for any adverse impact on the operations of GCPL.

* Susceptibility to raw material prices
Palm oil and crude derivatives (chemicals) are the major raw materials for GCPL. Over the last few years, decline in raw material prices has helped improve the operating profitability of GCPL. The company has also focused on premiumising the portfolio by moving from mass to mass premium products which fetch higher price improving the profitability of the company. For example, launch of creme in hair colour segment in India which is priced higher than the powder is driving sales and premiumising the portfolio. Thus although increase in raw material prices would impact the profitability of GCPL, the same is expected to be limited over the medium term.