Motilal Oswal has maintained its Buy rating on Godrej Consumer Products (GCPL), setting a target price of INR 1,700, representing a 16% upside from the current market price. The brokerage cites GCPL's growth-oriented strategy, including acquisitions, new product launches, and rural market penetration, as key drivers for continued outperformance. The company's focus on efficiency improvements and premiumization is also expected to contribute to strong earnings growth.
Key Takeaways from the Report:
- Positive Outlook: Motilal Oswal expects GCPL to achieve a Sales/EBITDA/Adj. PAT CAGR of 9%/11%/18% over FY24-FY26E.
- Strong India Business: The domestic business is showing strong recovery driven by innovation, market share gains in key categories like household insecticides and hair color, and strategic initiatives like Project Vistaar for rural expansion.
- Improving International Operations: GCPL is focusing on profitability in its international operations, particularly in emerging markets like Indonesia and Africa, through streamlining and category leadership strategies.
- RCCL Integration: The integration of Raymond Consumer Care Ltd. (RCCL) is progressing well, with improvements in inventory management and margin expansion despite a decline in revenue due to rationalization efforts.
- Innovation-led Growth: GCPL has launched several successful new products across categories, which are expected to contribute significantly to future revenue growth.
GCPL delivered strong performance in FY24 with consolidated sales growth of 6% YoY (21% in constant currency terms) and volume growth of 10%. EBITDA margins expanded 270 bps YoY to 21.8% due to benign raw material costs and operational efficiencies. The company has been actively reinvesting in its business, particularly in marketing and brand building, evident in a 36% YoY increase in advertising expenditure in FY24.
The analyst highlights GCPL's consistent focus on innovation as a major strength. Recent launches like Goodknight Agarbatti and Godrej Fab Liquid Detergent are expected to generate over INR 1b in revenue each in FY25. The robust innovation pipeline and effective go-to-market strategy provide GCPL with a competitive edge, especially in underpenetrated categories.
While the report is optimistic about GCPL's future, it acknowledges potential challenges. The company's international business faces headwinds from currency fluctuations and competition in certain markets. The RCCL business, while showing margin improvement, needs to regain lost market share in the urban general trade channel.
Looking Ahead:
Motilal Oswal anticipates continued strong earnings growth for GCPL, driven by volume growth in India, margin expansion in international operations, and successful integration of RCCL. The company's focus on premiumization and efficiency initiatives is expected to further enhance profitability.
Valuation:
Motilal Oswal's target price of INR 1,700 is based on a P/E multiple of 60x applied to the estimated June 2026 EPS. This valuation is justified by the company's strong growth prospects and consistent track record of innovation and execution.
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