What Sudhir Sitapati’s appointment as CEO means for Godrej Consumer Products

Investors have cheered the appointment of Sudhir Sitapati as the Managing Director (MD) and Chief Executive Officer (CEO) of Godrej Consumer Products (GCPL) in the belief that a new leader will accelerate growth at the packaged consumer goods firm.

GCPL shares soared 24.8 percent to a record Rs 894 in intra-day trade on the BSE on Wednesday, a day after the company announced its CEO succession plan.

“The stock price is up reflecting the expectation of people that the growth trajectory of GCPL will change under the new CEO,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

According to the company, Sitapati will be joining as MD and CEO on October 18 while the incumbent Nisaba Godrej will continue serving as Executive Chairperson.

Analyst upgrades

The succession plan has got a thumbs up from analysts several of whom upgraded their ratings on the stock soon after the announcement.

After at least a decade of being neutral on the company, Motilal Oswal Financial Services upgraded the stock to ‘buy’ with a target price of Rs 870 calling the succession plan “a potentially transformative event”.

“The underpenetrated household insecticides … and Hair Color… categories could greatly benefit from Sitapati’s past experience, where GCPL has struggled to boost penetration,” said Motilal Oswal.

ICICI Securities upgraded it to ‘buy’ rating from ‘add’ while Edelweiss has rated it a “Top Pick.”

The consumer goods company’s March quarter results are also adding to the cheer. It reported a 59 percent year-on-year increase in net profit to Rs 365.84 crore for the March quarter. Net sales rose 26.9 percent to Rs 2,705.69 crore.

The HUL school of leadership

Sitapati comes to GCPL after spending 22 years in Hindustan Unilever Limited (HUL), where he headed its foods and refreshment business in his last role. He has also been a part of the senior management team in the detergents business. According to Motilal Oswal, these segments had fared very well under his oversight and marketing campaigns in both segments have had a high impact.

Sitapati is said to have spearheaded the $5 billion merger and integration of GlaxoSmithKline Consumer Healthcare with HUL.

The HUL pedigree is one key factor for this welcome by investors. The organisation is known to be a training ground for CEOs because of its large size and reach, focus on systems and processes, and leadership.

Indeed, Sitapati himself wrote a book two years ago, The CEO Factory: Management Lessons from Hindustan Unilever, which examined the company’s secret management training sauce.

Now, he has a chance to put these lessons to practice at another company.

A professional edge

This is not the first time when investors have cheered the entrance of a professional manager in a family-run listed firm. There are other examples such as Varun Berry at Britannia and Pratik Pora at Jubilant.

Overall, as the chart below shows, changes in leadership quite often lead to stock re-rating as well.

In GCPL’s case, too, it has had a professional CEO in the past. Nisaba Godrej, the daughter of Godrej Group chairman Adi Godrej, was appointed the MD and CEO after Vivek Gambhir stepped down last year in June.

Now, with a professional CEO back at the helm, analysts are counting on Sitapati’s vast experience to lead the way for GCPL.

“The GCPL stock has hugely underperformed many other consumer names over the past few years, and now we expect this to potentially reverse,” said Edelweiss.