Q2FY24 Review: Godrej Consumer: A subdued quarter

2 Nov 2023 , 01:38 PM

In a quarter where India HI (household insecticides) was marred by adverse weather, GCPL reported 29.9% Ebitda growth, along with a decent performance in the RCCL (Raymonds consumer care Ltd) business despite pipeline corrections. Moreover, the company has franchised out certain part of the operations in Africa which was not making profits in a move which is expected to yield 2% EPS accretion. Analysts of IIFL Capital Services believe that the company has margin levers in all geographies and expect ~20% Ebitda growth in FY25, over a ~20% in FY24. However, there is a 2%/1% EPS cut for FY24/25 due to lower sales. Maintain BUY, TP Rs1125. 

Beat on estimates: 

The consolidated sales grew by 6.1% (IIFLe 5.8%) whereas the Ebitda grew by 29.9% (IIFLe 24.3%). India HC growth was weak at 5%, and hair colours was impacted by Adhik Maas. The staff cost/advertisement cost grew by 29.4% (RCCL related) /28.9% against analysts of IIFL Capital Services estimate of 20%. In International business, Indonesia registered a good quarter with a 16% sales growth (14% in CC terms) whereas the Africa region reported a sales value decline of 5% (17% growth in CC terms). 

Park Avenue and KamaSutra performance on track: 

The Park Avenue and KamaSutra business saw a sharp improvement in sales runrate and clocked sales of Rs.1.42bn for Q2FY24. The integration of the businesses with that of GCPL is largely completed and the cost synergies are expected to flow from H2FY24. The management is on track to bring up margins from single digit at the time of acquisition to 20%+ in FY25. 

EPS downgrade for FY24/25 by ~2%/1%: 

The company has relaunched HI in Indonesia with 5x efficacy and analysts of IIFL Capital Services expect similar launches in India over next few months to boost growth. However, their estimates are cut 2%/1% for FY24/25 on account of lower sales due to price deflation. Analysts of IIFL Capital Services believe that GCPL will still be one of the highest growth stocks for the next ~6 quarters, which will support valuation (currently 42x FY25).