Godrej Consumer (GCPL) has reported consolidated revenue and gross profit figures that were in line with our expectations, while Ebitda was slightly higher than anticipated. The company’s India branded business recorded a robust volume growth of approximately 13% y-o-y, which is a positive development. Furthermore, despite a y-o-y increase of around 21% in consolidated advertising expenses, Ebitda increased by approximately 32% y-o-y. The outlook on margins is positive, primarily driven by decreasing input costs and cost-saving initiatives. The management has reiterated its strategy, which includes prioritising category development activities, simplifying business operations, and focusing on the people and the planet while also ensuring profitability. Overall, we view this as a positive result for GCPL, and we maintain a positive outlook on the company’s prospects.
Healthy pace of earnings (mid-20’s CAGR on Ebitda and PAT over FY23-FY25E) is likely to be led by: (i) superior growth in highly profitable markets, such as India and Indonesia; (b) focus on profitability in Africa; and (c) continuing working capital improvement in the overseas business. We reiterate our Buy rating with a target price of Rs 1,130.
GCPL has been on the right path toward improving the India business sales growth in recent years. FY23 is likely to be the third consecutive year of close to double-digit sales growth after a weak FY16-FY20 period, where growth decelerated. Disruptive innovations, access packs, and higher but concentrated ad-spends are likely to result in continued healthy growth in this high-margin and high-ROCE domestic business. Profitability outlook is also gradually improving in the overseas business.