Maintain ‘buy’ on Godrej Consumer Products (GCPL) with a target price of R1,331 per share. We like GCPL’s aggression in developing categories through new launches and cross pollination. Gross margin is also set to benefit from benign raw material prices. At current market price, the stock is trading at 34.2x and 27.1x FY16e and FY17e.
GCPL, with Project FutureNow, is targeting to double its domestic business over next 5 years, at CAGR of ~17%. Project OneRural aims at increasing salience of rural sales to 35% from current 27% over next three years. Gauging the rising importance of the e-commerce platform in FMCG, the company has set up a separate team for its e-commerce channel. Premiumisation remains key focus area as most of the new launches will be made at the premium end. Success of new launches to premiumise portfolio and progress of entry into premium hair colour (HC), hand wash and face wash remain key monitorables.
GCPL plans to launch 9-10 new products in FY16, which will drive growth as 40% of incremental growth comes from innovation pipeline. New product launches will not only help in entering new categories, but also up-trade existing categories. Going ahead, the company believes that urban growth trajectory will continue to improve, while the urban-rural gulf will reduce. In Q4FY15 and Q1FY16, GCPL expects to better its margins, led by benign raw material environment, better mix and cost saving initiatives.
By Edelweiss