Godrej Consumer Rating: Add | In fair value zone

1 56


Godrej Consumer product’s (GCPL) has outperformed FMCG peers and the broader market, delivering a return of 21% over the past 6 months and 33% over the past 12 months. This impressive performance can be attributed to the company’s improving operating performance and positive outlook for both its India and international businesses. The management’s strategic initiatives to turn the company around have started to bear fruit, supported in part by favourable external factors such as the correction in palm oil prices and a steady high-intensity season. With these factors in play, GCPL is on track to achieve a 17% EPS CAGR from FY2023 to FY2026.

Considering the current market conditions, we are downgrading our recommendation from BUY to ADD, as we only foresee a modest upside in the short term. As a result, we have revised the FV to Rs 1,150, based on a price-to-earnings (PE) ratio of 45X June 2025E (previously 43X). To see further improvement, a sustainable turnaround in the high-intensity season and steady progress in the international businesses are required for a potential re-rating.

GCPL management has implemented several initiatives over the past 20 months to foster sustainable category development and expedite growth. Despite facing significant RM inflation, GCPL has maintained its marketing investments, emphasising the importance of brand promotion and visibility. GCPL has revitalised its marketing campaigns to enhance their effectiveness and appeal, ensuring they resonate with the target audience and drive consumer engagement.

Recognising the potential in rural markets, GCPL has increased its sampling efforts, allowing consumers in rural areas to experience and try its products, thereby expanding its customer base.

GCPL has introduced lower unit packs (LUPs) for hair color and other personal care products, making them more affordable and accessible to a wider range of consumers. The company has strengthened its management team by bringing in new talent and revising key result areas (KRAs) to prioritise the quality of earnings, focusing on sustainable and profitable growth. It has streamlined its organisational structure and enhanced internal processes, leading to improved efficiency and effectiveness across various departments and functions. The company has implemented measures to optimise inventory and improve working capital management, resulting in better cash generation and financial performance.

GCPL has placed a heightened emphasis on expanding its presence and operations in Indonesia and Africa, recognising these regions as significant growth markets with immense potential.

These initiatives, combined with favourable external factors such as corrections in palm oil prices and a steady season for hair color and other personal care products, have begun to yield positive results for GCPL.

We believe that GCPL is on track to deliver its HSD volume growth (UVG) and high-teen/20%+ Ebitda growth guidance in FY2024E. We estimate a revenue/PAT CAGR of 10% (organic)/17% (including RCCL) over FY2023-26E, led by a 375 bps expansion in Ebitda margins. We estimate 10%/8% volume/value growth (organic) in the India business, aided by a steady HI season. Indonesia growth would bounce back as guided.


Source link

What do you think?

Leave a Reply

GIPHY App Key not set. Please check settings

    1 58

    MFs in favour of category-wise TER slabs

    designer 1125324 960 720

    Overcoming Setbacks: Inspiring Stories of Recovery from Injury