By Nuvama Research
FMCG major Godrej Consumer Products Ltd (GCPL) expects a double-digit sales growth in the domestic market for the December 2022 quarter. GCPL’s Q3FY23 update, is better-than expectations with a 9% y-o-y Ebitda growth (versus a 15% y-o-y dip in Q2FY23). This is the first quarter to showcase meaningful improvement under the new MD—Sudhir Sitapati’s leadership. The next few quarters will also likely be strong led by GM recovery and higher ad-spends. As highlighted in our Q3 Preview, GCPL has seen recovery in household insecticides (HI), apart from strong growth in hair colour and air fresheners, leading to 10% consolidated revenue growth (despite poor rural consumption). Indonesia business, which has been a laggard for many a quarters, will demonstrate gradual recovery. GCPL continues to see 20% weightage in our model portfolio. Maintain ‘BUY’.
Also read: Covid, higher OPEC production hits crude oil prices; avoid entering at current levels, go long at Rs 5850/bbl
Household Insecticide segment has seen recovered, which is in line with our expectations. Despite demand softness in India, domestic sales will grow in double digits (vs. 8% growth in Q2FY23).
Godrej Africa, USA, and Middle East (GAUM) continues its strong sales growth momentum, clocking double-digit sales growth in CC terms. Q3FY23 is likely to be one of the best quarters ever for its air freshener segment.
We expect this quarter’s growth momentum to continue. With palm oil prices having corrected from its peak and GCPL focusing on promotions, the soap business will also likely see notable recovery next quarter onwards. The personal care segment is poised to maintain its strong performance.
Also read: Will 2023 be any different from 2022? Growth-oriented stocks to stage a comeback in big way
HI segment, although recovered in Q3FY23, would need watching in Q4FY23 given the seasonality impact. However, rural demand remains under pressure across the industry. We expect rural recovery to be visible FY24 onwards. GCPL continues to see 20% weightage in our model portfolio and we maintain ‘BUY/SO’ recommendation on GCPL with a TP of Rs 1,065.