GCPL stock has run up rapidly post the announcement of the new CEO as the market quickly priced in the growth impetus new leadership could bring in.
Key context for Indonesia business: 1) Indonesia is a key international market for GCPL, with FY21 sales/EBITDA contribution of 16%/20%, respectively. 2) Business has high EBITDA margins (c28%) and leading positions in its key categories — household insecticides (Hit), air fresheners (Stella), baby wipes (Mitu), and hygiene (Saniter). 3) Its 5-year sales CAGR of 3.8% has been underwhelming and volatile due to poor macro and competitive challenges, which resurface from time to time in its core categories. 4) GCPL has done exceptionally well with newly launched hygiene brand Saniter in response to Covid-19; brand already makes up 10% of its revenues.
Key points from management call on Indonesia business: 1) Macro environment remains challenging and gradual pick-up in demand is expected. 2) GCPL is aiming for a rebound to sustainable double-digit growth in the medium term. However, given the input price pressure, it aims to maintain EBITDA margin in FY22 through judicious price increases and cost efficiencies. 3) Its newly launched Saniter brand is now 10% of its Indonesia sales, and GCPL, on the back of new categories under this hygiene brand, hopes to maintain the growth momentum even as Covid-19 led demand wanes. 4) Under home insecticides, GCPL sees opportunities to expand through premiumisation, conversion from coil market and growing non-mosquito portfolio. 5) Although baby wipes face price wars, GCPL is responding to defend its market share. 6) A change in its hair care strategy to focus on domestic rivals as opposed to international ones has started to bear fruit and the category is expected to grow strongly in FY22. 7) The ecommerce channel has grown exceptionally well.
Overall, GCPL is preparing for a double-digit sustainable revenue growth agenda.
We stay ‘hold’ with new target price of Rs 942: GCPL stock has run up rapidly post the announcement of the new CEO (to join in October) as the market quickly priced in the growth impetus new leadership could bring in. Our analysis suggests that the growth expectation built into the stock price is quite significant (14-15% CAGR for the next 15 years). This in our view limits upside. Sustained growth rebound, margin expansion in Africa and revenue growth revival in Indonesia could still be potential stock catalysts.
Retain ‘hold’, with new TP of Rs 942 (from Rs 910): We have revised our long-term growth estimates, and roll forward our valuation base, which leads to a new TP of Rs 942.