Godrej Consumer Products Q1 Review - Transformation Delivering Good Results Overall: Systematix

Systematix Research Report

Godrej Consumer Products Ltd.’s Q1 FY24 had an operationally strong quarter with 10% organic volume growth in India, double-digit volume growth in household insecticide category for second consecutive quarter and accelerated growth in both Indonesia and Africa.

Sharp margin expansion in India was partly offset by losses on account of Nigeria currency devaluation and Raymond Consumer business restructuring. Key result takeaways:

1. YoY, India revenue grew 9%, with 12% overall and 10% organic volume growth,

2. home care business grew 14% (double digit volumes), given a strong performance in HI from good season (weak summer), strong growth in premium formats of electrics and aerosols and double digit growth in air fresheners,

3. personal care grew 2% (high single digit volumes), with mid-single digit growth in hair color, high single digit volume growth in personal wash and hygiene,

4. Indonesia business grew 15% in constant currency terms,

5. Africa business grew 16% in CC terms,

6. gross margin grew 715 bps YoY to 53.7% due to softening raw material inflation,

7. consolidated Ebitda margin expanded 197 bps YoY led by 230 bps increase in India business, 410 bps increase in Indonesia and 370 bps rise in  Godrej Africa, U.S., and Middle East.

8. Capex of Rs 9 bn to be incurred over a period of three years in in India to increase capacity by ~20%.

Godrej Consumer Products’ aggressive category development initiatives seem to be working well in air and hair segments and have started showing better growth in the HI space as well.

Business simplification initiatives have also started delivering strong cost savings and cash generation. We see the strong momentum especially in India to drive a high single digit volume growth in FY24 while Ebitda should grow ~20% plus led by better gross margins partially offset by higher media spends.

We build in flattish revenue and Ebitda in FY24 for the acquired business of Raymond Consumer which should stabilise from H2.

We now build in a 12%/20% revenue/earnings per share compound annual growth rate over FY23-25E and maintain our 'Hold' rating with target price of Rs 1,116 (versus earlier target price Rs 1,015) based on 45 times FY25E earnings.

While the Raymond business and Nigeria currency issues will be an overhang for FY24, we view the better shape of profit and loss (higher margins despite higher advertising and promotion and lower gross margins), strong cash generation and improving growth trajectories across geographies and businesses (led by aggressive category development) as key long-term positives.

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