Rating Rationale

Strengths:
* Diversified Revenue Profile
Revenue is diversified across geographies and product segments. In fiscal 2019, 54% of the revenue was generated from India and 46% from abroad. Africa and Indonesia are the major international geographies which contributed to 24% and 15%, respectively, of total revenue. Revenue is also distributed across product segments with household insecticides (home care), personal care and hair care contributing 29%, 27%, and 32%, respectively in fiscal 2019. The growth in revenue from international operations has been driven primarily through acquisitions. The company 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 international operations has increased from 23% in fiscal 2010 to 46% in fiscal 2019. The operating profitability of international operations has grown from 12% in fiscal 2010 to more than 17% in fiscal 2018, though the same decline to ~15% in fiscal 2019 owing to higher raw material cost and marketing expenses incurred to ramp-up the overseas operations.

* 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. It is a market leader in all the segments where it operates in - household insecticide, air refresheners and wet tissues- in Indonesia. In Africa, it is the market leader in dry hair extensions (hair braids), and ethnic hair colour segments. Also, the acquisition of Strength of Nature (SON) has supported the company in gaining the market share in the wet hair care segment. The dominant leadership position across various segments provides pricing power in those segments which helps the company to maintain its profitability.

Further, the company also has strong focus on innovation which has led to new launches contributing a healthy share to the overall growth. It has successfully cross pollinated products across markets, for example, the Aer freshener in India was taken from the Indonesian portfolio where it is sold under the Stella brand. The company 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 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 coverage of about 9 times, net debt to EBITDA of 0.9 time as on March 31, 2019 as compared to 12.04 times and 0.75 times as on March 31, 2018. The marginal weakening was on account of lower operating margins, rupee depreciation and higher interest rates in fiscal 2019. Further company has availed debt of about 58.5 Mn $ to fund the payouts on account of past acquisitions. Gross debt to EBITDA ratio was about 1.6 times as on March 31, 2019, and is expected to remain below 2.0 times over the medium term.

GCPL is also expected to generate healthy cash accruals of about Rs.800-1000 crore which would be driven by steady revenue growth and a stable operating margin over the medium term. Also as a policy the company maintains adequate cash and bank balance of at least equal to one year repayment which further strengthens the financial risk profile.

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, the Megasari group in Indonesia and the Darling group in Africa. In fiscal 2017 the company acquired Strength of Nature (SON) for a consideration of about Rs.2100 crore. The company has put/call liability and has earn payouts on account of past acquisitions, which is expected to be paid though a mix of cash accrual and debt. It has a clear philosophy of acquiring brands in home care, personal care, and hair care segments and only in the geographies where it is now present. The ability to create value from any large debt funded acquisition in a timely manner will continue to be a key rating sensitivity factor.

* Exposure to macroeconomic, geopolitical and currency risks in overseas geographies
Outside India, the company has a presence in Asia, Africa, Latin America and the UK. The economies in these regions might face macroeconomic growth challenges as seen in Indonesia, Argentina, and the UK, which can limit the growth in overseas operations. Also there is a risk of geopolitical events such as change in government and local unrest that could affect operations. This risk in Africa has been mitigated by a presence across countries in south, west and east Africa. Currency fluctuations can harm profitability of the overseas operations which have been volatile over the last few years. Considering the geographical diversity 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 operations.

* Susceptibility to fluctuation in the raw material prices
Palm oil and crude derivatives (chemicals) are the major raw materials for GCPL. Over the past few years, a decline in raw material prices has helped improve operating profitability. On a consolidated basis the operating margins stood at 20.5% in fiscal 2019, against 21.2% in fiscal 2018. The margin has dipped on account of higher raw material prices, higher spend to ramp-up of the Africa business and currency headwinds faced in the Argentina business. However with new product launches and cross-pollination of products, the company has been able to maintain its market share and operating profitability.

The company has also focused on premiumising the portfolio by moving from mass to mass premium products which fetch higher price, thus improving the profitability. For example, the launch of creme in the 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 profitability, the same is expected to be limited over the medium term.