Buy Godrej Consumer; target of Rs 1005: Motilal Oswal

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26 Aug, 2025 12:21

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Godrej Consumer (GCPL) declared an in-line set of numbers in its 2QFY23 results. While there was some sequential gains on the gross margin front in 2QFY23, the steep ~50% fall in palm oil cost from peak will result in markedly higher gross margin gains in 2HFY23E and FY24E. The company is using part of the gains to bolster its ad-spends (up ~50% YoY in 2QFY23, bucking the trend of peers for the quarter) to boost medium-term revenue growth prospects. The management retained its double-digit sales growth target in the current year and medium-term sales outlook is also attractive. This along with steep material cost reduction is likely to lead to extremely strong earnings growth from 4QFY23. Balance sheet improvements are also remarkable with 25% SKU reduction in India contributing to doubling of India business operating cash flows (OCF) YoY. Maintain BUY.

With investments by the new CEO focused on boosting growth in the highmargin, high-RoCE domestic business, GCPL’s medium-term earnings growth outlook is strong as highlighted in our recent detailed CEO meet note. Valuation at 36x FY24E EPS is inexpensive and is at a steep discount to staples peers. We maintain our BUY rating with a TP of INR1,005 (premised on 40x Sep’24E EPS).

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