Godrej Consumer Products gains on Q4 numbers, analysts say turnaround story is fully underway

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Godrej Consumer Products shares gained over 2 percent on May 11, as investors cheered the FMCG company's volume-led revenue growth for the March quarter.

The company on May 10 reported a 24.5 percent year-on-year (YoY) growth in consolidated profit at Rs 452.1 crore for the quarter ended March 31, 2022. Consolidated revenue for the period grew by 10 percent YoY to Rs 3,200.2 crore in Q4FY23 with volume growth of 6 percent.

India business sales increased 12 percent year-on-year led by volume growth of 11 percent, Indonesia sales grew by 8 percent; Africa, USA and Middle East sales rose by 6 percent, while Latin America & SAARC sales declined 3 percent, the company said.

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At 12.42 pm, the stock was quoting at Rs 982.85 on the NSE, up 2.21 percent from the previous close. The stock has rallied 8 percent in May so far after taking a knock on acquiring Raymond's consumer care business on April 27.

Unlike its FMCG peers, Godrej Consumer has relatively lower rural exposure at an overall level, about 28 percent of topline. A higher urban salience has helped in good volume growth, as rural India continues to struggle with inflation, said analysts.

The company's margins also expanded to 20 percent from 16 percent in the year-ago period.

"On profitability front, margin recovery has been steeper and faster than what we anticipated, especially in the India business, which led to a significant beat in EBITDA vs forecasts. India business seems to be on a stronger footing now, especially with household insecticides also doing well," as per JM Financial's analysts, who have a “buy” rating on the stock with target of Rs 1,100.

In an earlier interview to Moneycontrol, Godrej Consumer's chief financial officer Sameer Shah said that category development by building accessibility, brand relevance and sampling was working well for the company.

Small is big

Small packs of hair colour cream and premiumisation of air freshners helped the company gain market share.

For FY24, the company expects to maintain volume growth momentum. The management is targeting high single-digit volume growth for the fiscal and 25 percent margins in the recently acquired Park Avenue.

Most foreign broking firms are bullish on the stock. Macquarie has given it an “outperform” rating with a target of Rs 1,000 and Morgan Stanley has an “overweight” rating with a target of Rs 1,129.

Also Read: How complete gets Godrej after buying out Raymond's? Whiff of scepticism in the air

"India volume growth is the strongest within peers. The turnaround story for the company is fully underway, and the international business has started to see a recovery. There is high visibility for margin expansion in FY24," Goldman Sachs analysts said. They have a target of Rs 1,150 on the stock.

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