Godrej Consumer Products

07 Oct

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 6th 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.”

 

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13 Sep

Will keep investing to grow the household insecticides market – Godrej Consumer

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.1% lower at 17,355. Top gainers in NIFTY50 were COALINDIA (+3.9%), HINDALCO (+3.3%), and KOTAKBANK (+1.7%). The top losers were RELIANCE (-2.3%), ICICIBANK (-1.8%), and SBILIFE (-0.9%). The top gaining sectors were MEDIA (+1.3%), METAL (+1.3%), and IT (+0.9%) while the top sectoral losers were BANK (-0.6%), PRIVATE BANK (-0.5%), and PSU BANK (-0.4%).

Will keep investing to grow the household insecticides market – Godrej Consumer

Excerpts of an interview with Mr. Sunil Kataria, CEO- India & SAARC at Godrej Consumer Products (GODREJCP), aired on CNBC TV18 on 9th September 2021:

  • Input cost inflation has not slowed down against the expectation that the inflation would come down in the July-August period. Current inflation pressures may remain for another 6 months.
  • Demand is holding steady currently. Rural demand was strong even in the 1st wave of covid-19. The positive thing now is that urban demand has also seen a sharp recovery.
  • Discretionary demand has come back strong. Provided the festive season does not get disrupted and continued ramp-up of vaccination, further growth should be possible.
  • GODREJCP is taking calibrated price increases in some products to mitigate the higher input cost prices. Further mitigation is being done via overhead cost control. GODREJCP has taken 7%-8% price hikes so far in FY22.
  • Management expects to maintain EBITDA margins in the 25%-26% band. This operating performance will be delivered without compromising on ad spends. Ad spends are an important investment in brand building.
  • The core business of soaps and household insecticides had strong tailwinds in FY21 and did not suffer due to the covid-19 disruption.
  • Discretionary items like hair color and hair care faced a challenge in 1HFY21 but came back strongly in 2HFY21.
  • Management expects both- core and discretionary categories to perform well going forward. Mr. Kataria expects overall double-digit growth across all categories.
  • GODREJCP is seeing big momentum in personal wash and hygiene so increasing capacity additions there. But capex outlay is not an issue for a cash-rich FMCG business.
  • Being the market leader in household insecticides, GODREJCP will undertake continued investments in increasing product portfolio and brand building in household insecticides.

Asset Multiplier comments:

  • Consumer staples, as well as discretionary companies across board, have been taking price hikes to mitigate the impact of input cost pressure. However, all managements are taking a calibrated approach as demand is still a bit fragile in some product baskets due to the economic impact of lockdowns.
  • How the rural demand shapes up from here remains to be seen as the covid-19 2nd wave has impacted rural India more than the 1st

Consensus Estimate: (Source: market screener websites)

 

  • The closing price of GODREJCP was ₹ 1,119/- as of 13-September-2021.  It traded at 59x/51x/44x the consensus earnings estimate of ₹ 19.0/22.0/25.2 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,058/- which trades at 42x the earnings estimate for FY24E 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.”

 

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08 Jul

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E of ₹ 21.4/-

 

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.”

 

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