Q3FY23 Review: Godrej Consumer: On the right track

1 Feb 2023 , 11:14 AM

Godrej Consumer (GCPL) reported robust operating performance with sequential margins recovery across all geographies, led by easing of commodity prices. Sales grew 9%, driven by 14% growth in the Africa business and 11% in India; while Indonesia sales declined by 3% in reported terms. Household Insecticides (HI) in India posted a steady performance led by premium formats and aerosols, while Indonesia continues to be impacted by the large base of Hygiene portfolio (grew 2% in constant currency ex-Hygiene). Margins contracted in the international business but were offset by the 190bps expansion in domestic business, driven by the easing commodity price inflation. Overall Ebitda increased 9% and was in line with analysts’ of IIFL Capital Services estimates.

Corrective actions in Indonesia would drive growth and margin improvement initiatives in Africa would start to bear fruit from FY24. GCPL has launched an affordable anti-mosquito no-gas spray under ‘HIT’ and LUP liquid vaporizer under ‘Good knight’ — for improving accessibility, driving penetration and tackling competition from illegal incense sticks.

With pricing anniversaries and early signs of slowdown in discretionary spending, there could be downside risks to the analysts at IIFL Capital Services India growth estimates (8% in FY24). Analysts at IIFL Capital Services upgrade their EPS estimates by 15%/4.4%/3.9% for FY23/24/25, to factor in the sharper-than expected improvement in margins.

Analysts at IIFL Capital Services maintain Buy with target price of Rs 1025.