Godrej Consumer expects double-digit volume growth in Q1. What should you do?

On a consolidated basis, Godrej Consumer Product Ltd foresees a high-single-digit growth in volume and nearly double-digit growth in sales in rupee terms, it has said in a business update

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Godrej Consumer Product Ltd (GCPL), a leading fast-moving consumer goods (FMCG) player, anticipates a significant increase in volume for the first quarter of the current financial year.

On a consolidated basis (organic), the company foresees a high-single-digit growth in volume and nearly double-digit growth in sales in rupee terms. The overall sales growth including inorganic is expected to reach double digits, it said in a business update on July 5.

The company mentioned that the sales growth exceeded the mid-single-digit range slightly, as it passed on the advantages of reduced input costs to the consumers.

The international business of GCPL, which includes regions such as Africa, the USA, and the Middle East (GAUM), achieved constant currency sales growth in the mid-teens.

Several brokerages share the expectation that the company will maintain its growth momentum. The optimism is supported by GCPL’s investments in the grooming category, continuous development of new product categories, and a focus on expanding the high-margin and high-return on capital employed (RoCE) domestic business.

These initiatives are anticipated to contribute to a strong medium-to-long-term earnings growth outlook for the company.

Here’s what brokerages have to say on the Q1 business update:

Nomura Research

Nomura anticipates robust growth for GCPL in the medium term, primarily driven by increased volumes in India’s household insecticides (HI) segment as well as in hair care and hair colour products.

The management aims to achieve double-digit growth over this period. The company’s market development activities across different regions, coupled with higher advertising expenditures compared to the industry average, are expected to contribute to this growth.

The Indonesian business is also experiencing a revival in growth, while GCPL continues to witness improved growth in the GAUM (Godrej Africa, USA, and Middle East) region.

The company is also poised to benefit from an enhanced gross profit margin (GPM) and operating profit margin (OPM) profile due to a more favourable product mix and lower input costs, such as palm oil and crude oil.

The brokerage firm has maintained “buy” rating on the stock and increased its target price to Rs 1,150 a share from Rs 1,062.

Nuvama Research

In the organic segment, the India business is projected to experience a year-on-year (YoY) growth of 9.5 percent. This growth will be primarily driven by an 11 percent increase in volume, offset by negative pricing growth in soaps.

Despite an anticipated rise in advertising expenditures for GCPL, the company is expected to witness an expansion in gross and EBITDA margins by 421 basis points and 256 basis points from the previous year.

One basis point is one-hundredth of a percentage point.

Nuvama predicts a significant year-on-year (YoY) increase in earnings before interest, taxes, depreciation, and amortisation (EBITDA), excluding Raymond Consumer Care Limited (RCCL). However, there will be a one-time expense related to stamp duty paid for the slump sale transaction of Park Avenue and KamaSutra brands, acquired from RCCL.

RCCL’s sales will be incorporated for approximately six-seven weeks in Q1FY24, and Nuvama expects primary sales to be weak due to inventory reduction.

On the international business front, Indonesia is projected to achieve a healthy double-digit growth rate of 12-13 percent YoY. This growth is attributed to a soft base (a decline of 12 percent YoY in constant currency terms in the previous year) and the implementation of structural changes last year.

The brokerage firm has maintained the “buy” rating on the stock and kept its target price at Rs 1,145 a share.

Citi

Citi has assigned a “buy” rating to Godrej Consumer with a target of Rs 1,175 a share. In their Q1FY24 update, they express confidence in the company’s ability to sustain double-digit domestic volume growth, indicating that the company is heading in the right direction.

It anticipates improved performance across various segments and will closely monitor any initiatives related to household insecticides in India.