Why Godrej’s new anti-mosquito agarbatti has got the markets buzzing

The anti-mosquito incense sticks business is currently a Rs 1,200 crore market.

The stocks of Godrej Consumer Products Limited (GCPL) surged over 9 percent on February 1 after the company launched its Goodknight Agarbatti, India’s first, legal anti-mosquito incense sticks.

The anti-mosquito incense sticks business is currently a Rs 1,200 crore market that’s crowded by unorganised players. These players bypass the regulations of the Central Insecticides Board (CIB) to create effective yet harmful products.

GCPL plans to gain over 50 percent market share from the unorganised players. The Godrej incense stick is using a new molecule – Renofluthrin (RNF) — and GCPL has tied up with a manufacturer that will develop it for the company. RNF is considered twice as effective as other molecules used in home insecticides (HI) in India, says GCPL.

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Analysts said that the GCPL’s exclusive rights over RNF, along with a strong distribution system, will help the company gain market share in the anti-mosquito incense sticks category.

“The new product has an extensive distribution network, which will enable it to make inroads into every nook and corner of the country, and its high-decibel advertising campaign will highlight its safety and efficacy compared to the unorganised trade,” said Vishal Gutka, Research Analyst, Phillip Capital.

GCPL will be able to gain market share in the category because consumers will prefer to buy a safer GCPL product over that of some unorganised player, said Ajay Thakur, consumer staples analyst at Anand Rathi. ``Plus, Goodknight Agarbatti is available at a price point that’s similar to the competition’s: Rs 12 in north India, and Rs 10 in south India, enabling consumers to go for the safer product,’’ said Thakur.

Home insecticides is a regulated market where companies have to have their formulation, or molecule, approved by the CIB before marketing their product. GCPL has registered RNF with the CIB and can use it in incense sticks.

Companies spend several years formulating and testing a new molecule, before they can get the CIB’s approval. “Since unorganised sector players do not take the board’s approval, they dip the sticks in pesticides to make them more effective, which is very harmful,” said an analyst on condition of anonymity.

This is not GCPL’s first try at anti-mosquito incense sticks. The company, in 2018, had forayed into this segment with agarbattis made of natural ingredients. However, that was a dud as natural ingredients like neem were ineffective against mosquitoes, said Thakur. The product was slowly phased out.

Even though GCPL has a first-mover advantage in incense sticks, it won’t have much of a margin since the product is priced quite low, said analysts Moneycontrol spoke to. “GCPL will gain market share in the incense stick segment, however their margins in this will be lower than the company average,” said Gutka.

GCPL can use RNF only in incense sticks now and awaits approval for high-margin products like liquid vaporisers and aerosol. GCPL has exclusive use of RNF medium term, after which the competition can also use the molecule, said Nitin Gupta, Senior Research Analyst, Emkay Financial Services. “From margin perspective, format approvals for liquid vaporiser and aerosol would be crucial,” said Gupta.

Medium term is expected to be around 3-4 years say analysts.

In an earlier report, Phillip Capital had said, “India continues to work with old molecules, which hampers the effectiveness of HI products, as mosquitoes keep evolving.” It added that the average weight of mosquitoes has more than doubled in the past couple of decades, making products with older molecules less effective. Thus, GCPL has a competitive edge over its competitors in the medium-term at least.

The HI category contributes around 30-40 percent of GCPL's revenues. The company's sales have grown at a CAGR of 10 percent over the last three years, while its profit has grown at a CAGR of only 3 percent over the same period. GCPL's share price has increased 29 percent in the last one year, and 17 percent in the last six months.

GCPL is expected to report a revenue of Rs 15,749 crore over FY24-25, as per ICICI Securities. It is expected to report a net profit of Rs 2,513 crore over the same period.

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