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Systematix Report
Godrej Consumer Products Ltd. reported in-line earnings despite a soft volume performance and currency headwinds given better margins led by cost savings and benign palm oil prices.
While Indonesia and Africa delivered strong constant currency growth, India growth was impacted by a poor quarter for household insecticide and hair color segments.
The integration of Raymond consumer business has started delivering good results. Increase in media spends and category development initiatives seem to be helping market shares across categories while margin outlook remains quite strong.
Despite the blip seen in Q2, Godrej Consumer Products' aggressive category development initiatives seem to be driving share gains and penetration across categories.
Business simplification initiatives have also started delivering strong cost savings and cash generation. We see the company sustaining a 7-8% volume growth in FY24 while Ebitda should grow ~20% plus led by better gross margins partially offset by higher media spends.
Adjusting our estimates for softer growth but better margins in FY24 and the shift to royalty model in East Africa in FY25, we now build in a 9%/19% revenue/earning per share compounded annual growth rate over FY23-25E and maintain our 'Hold' rating with target price of Rs 1,095 (Rs 1,116 earlier) based on 45 times FY25E earnings.
While there are near-term currency and growth headwinds, 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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