Q3FY24 Review: Godrej Consumer: New pillar for HI growth strategy

2 Feb 2024 , 11:43 AM

After addressing affordability (smaller packs) and communication (regular use for a good night’s sleep) earlier, GCPL today addressed the third pillar of HI growth strategy ie efficacy by using a new molecule RNF which is more efficacious, in a new format i.e incense sticks. Analysts of IIFL Capital Services expect this molecule to be introduced in other formats as well. This will help GCPL gain market share from illegal insense stick market of Rs12bn and from other organised players as well, driving double digit growth in the category vs flat growth in FY16-20. With HI, hair care, air care and deos all likely to grow double digits, plus a disruptive play in liquid detergents, there is a strong case for GCPL to be a double digit growth company in the medium term, barring currency fluctuations. Analysts of IIFL Capital Services increase estimates by ~1%, and maintain BUY with price target Rs.1350. GCPL is one of analysts of IIFL Capital Services picks in FMCG as highlighted in their CY24 outlook note. 

Q3FY24- a weak performance: 

The consolidated net sales grew by 2% (2% decline in organic sales) and the volumes grew by 8% (5% organic). The consol. Sales were affected by currency devaluation of Naira and Argentine Peso which resulted in Africa and Latin America regions reporting 18%/45% sales decline. Home care & personal care (organic) reported a sales growth of 5%/2% respectively. Ebitda increased by ~16% (IIFLe 5%). The beat on Ebitda was due to lower than expected staff cost and other expenses whereas the Ebitda margin expanded by 284bps largely driven by gross margin expansion, partly offset by forex loss. 

Entry into Rs12bn incense stick market: 

With the launch of GoodKnight Agarbatti (Government registered; at a Rs10/- price-point) which uses RNF molecule (2x more effective than other registered molecules), GCPL is well placed to formalise the incense stick market (currently largely illegal) and tap the large growth opportunity. On the back of this, analysts of IIFL Capital Services estimate the HI India sales to grow at 10% each for FY25/26. 

EPS upgrade by ~1%:

On account of a weak top-line performance, analysts of IIFL Capital Services cut their sales estimate for FY24/25/26 by ~2%. However, on the back of beat on margins, analysts of IIFL Capital Services upgrade their EPS estimate by ~1%. With HI, air care and deos all likely to grow double digits, plus a disruptive play in liquid detergents, there is a strong case for GCPL to be a double digit growth company. Maintain BUY, TP Rs1350.