Godrej Consumer Products rating – Buy: Indonesia outlook bright in medium term

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October 02, 2021 2:00 AM

Firm to build on recovery in the country; growth in global business, margin expansion are key; TP up to Rs 1,200; ‘Buy’ retained

GCPL aims to grow Indonesia business revenue in double digits over the medium term while maintaining margins.GCPL aims to grow Indonesia business revenue in double digits over the medium term while maintaining margins.

The Indonesia business contributes roughly 16% to Godrej Consumer’s (GCPL’s) overall business. The business has been lagging on growth compared with India and Africa businesses. In our conference, Akhil Chandra, Head, Indonesia business threw light on some strategies ahead for this business. GCPL aims to grow Indonesia business revenue in double digits over the medium term while maintaining margins.

Overall, the company has seen good growth in India and Africa businesses, and Indonesia too is being prepped to grow well over the medium term. The change in top leadership adds to our conviction. Maintain ‘Buy’ with a revised TP of Rs 1,200.

Key takeaways (pertaining to Indonesia business)
GCPL will grow in double digits over the medium term while maintaining margins. In FY21, performance in Indonesia was disappointing. GCPL saw a gradual recovery in Q4FY21; it will build on this to bring performance back on track through focused innovation and go-to-market efforts. Discretionary categories such as air care were also negatively impacted. Hygiene category shows an optimistic growth trend; the Saniter brand contributes close to 10% of category revenue in Indonesia now.

Air freshener is seeing a gradual recovery, particularly in Q2. The company has also taken pricing action, and is confident of regaining market share. GCPL aims to ramp up e-commerce to 10% in three years. It is focused on upgrading consumers from naphthalene balls to aerosols.

Outlook and valuation: Ready to take off; maintain ‘BUY’
GCPL’s strategy of launching innovative products at disruptive price points is set to bolster its growth amid tough macroeconomic conditions. A few recent examples are launches in the liquid vaporiser segment, a slew of launches under the Protekt brand, shampoo hair colour, powder-based hand wash, heena-based hair colour and natural neem incense sticks, among others.

Domestic margin, albeit under pressure in the near term on account of inflationary raw material prices, is expected to gain from supply-chain efficiencies led by Project PI. The company’s domestic business continues to track robust trajectory as mgmt has been taking corrective actions. Growth in IB coupled with margin expansion will be key going ahead. Rolling forward valuation to March 2023 we revise TP to Rs 1,200 (earlier Rs 1,135). Maintain ‘BUY/SO’. The stock is trading at 43.5x FY23e EPS.

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