Godrej Consumer - Better Focus To Drive Superior Earnings Growth: Nirmal Bang Initiates Coverage With A Buy

Nirmal Bang Report

We initiate coverage on Godrej Consumer Products Ltd. with a “Buy” rating and a target price of Rs 1,390, implying an upside of ~17% on current market price.

Key factors underpinning our positive view are:

• Remarkable track record of double-digit growth across all metrics over the last decade and a half. Revenue/Ebitda/profit after tax have clocked a compound annual growth rate of ~11%/13%/12% over the FY11-FY24E period. This track record has been attained despite the company losing its way in the second half of the last decade.

• Growth prospects have been boosted in recent years with a slew of course-correcting measures like significant increase in focus on the high margin and high return on capital employed domestic business, moratorium on acquisitions (especially overseas acquisitions) - unlike the past, reorganisation of businesses that are struggling for growth, revamp of the management team wherever required and targeted increase in ad spends to achieve high potential growth in key domestic categories.

• Growth has significantly revived during FY21-FY24E with ~8%/9%/5% CAGR in Revenue/Ebitda/ PAT compared to ~4%/7%/8% during FY16-FY20. Ebitda and profit CAGR in recent years could have been higher if not for the huge commodity cost volatility which is hopefully behind them now. The company is also expected to be net cash positive at the end of FY24 from ~50% net debt/to equity level in FY17.

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