Expects 2 Year Revenue CAGR to be in double digits: Godrej Consumer Products

Update on the Indian Equity Market:

On Thursday, NIFTY closed higher at 17,800(+0.9%). Top gainers in NIFTY50 were TATAMOTORS (+12.6%), TITAN (+10.5%), and M&M (+4.9%). The top losers were ONGC (-4.4%), DRREDDY (-1.3%), and COALINDIA (-0.96%). The top gaining sectors were REALTY(+6.2%), CONSUMER DURABLES (+5.2%), and AUTO (+4.4%), while OIL & GAS (-0.3%) was the only losing sector.

Edited excerpts of an interview with Mr. Sameer Shah, Chief Financial Officer, Godrej Consumer Products with CNBCTV18 on 6^th October 2021:

• The company expects high single-digit growth in 2QFY22E and a gradual recovery in 2HFY22E.
• The company is witnessing consumer offtakes for stapes and discretionary relatively strong.
• At the beginning of the year, Company had laid out the ambition of double-digit sales growth. It is on track and expects to see the same for 2HFY22E.
• Staples continued its growth momentum and discretionary or out-of-home categories continued to see an uptick.
• The hygiene category is expected to normalise at levels much higher than pre-COVID, but not at the peak of COVID levels.
• The company expects rural consumption and its growth momentum to be strong for the medium term. More importantly, the consumer offtake is looking robust.
• The company expects international performance to be mixed. Challenging macro-economic variables are impacting the performance.
• In countries like Indonesia the vaccination is picking up but the recovery is slow as compared to countries like India. The overall consumption has been relatively muted. Gradual recovery is expected for the rest of the year and over a period of time to reach double-digit growth.
• In Africa, double-digit growth is seen since the last 5-6 quarters and the company expects this growth momentum to continue in the medium term.
• The commodities prices are at their peak especially the agri-commodities. The prices of Palm oil which is a key ingredient for the personal wash category and crude which is an indirect derivative and key ingredient for packaging material are at their peak.
• The company believes the input cost is transient, it is taking calibrated price increases and working on cost-saving programs. It thinks scale leverage and premiumization should mitigate the high input cost impact partly if not fully.
• On an annual basis, the company expects margins to be marginally lower than 21% levels.
• The company plans to focus on double-digit sales growth. Once revenue growth is achieved and input cost normalizes, margins are expected to move up.
• Mr. Sudhir Sitapati to take over as Managing Director and Chief Executive Officer on 18-Oct-21.
• The company wants to stretch its play in the personal care space, some steps are already taken by the company in this direction, and wants to continue to expand in the next 3-4 years.
• Advertisement costs would be a mix of digital and traditional mass-market media like television and print.
• The advertisement spends are in the range of 10-12% in India, another growth pivot has always been innovation which needs a lot of awareness among consumers. Directionally, the company does believe the ad spends could go up.
• New launches drive premiumization and the company sees an increase in budgets of ad spends in the next 12-18 months.

Asset Multiplier Comments

• We think the company has been performing consistently well in various large categories. New product launches, premiumization and increasing advertisement spends will likely support the sales and margin growth.
• We believe the company continues to focus on multiple building blocks and will be able to drive profitable and sustainable sales growth in the medium term.

Consensus Estimate (Source: market screener websites)

• The closing price of Godrej Consumer Products was ₹ 1,030/- as of 07-Oct-21. It traded at 54x/46x/40x the consensus EPS estimate of ₹ 19/22.1/25.2 for FY22E/ FY23E/FY24E respectively.
• The consensus target price of ₹ 1,093/- implies a PE multiple of 43xon FY24E EPS of ₹ 25.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”