500% Dividends In 2023: FMCG Stock Recommended To Accumulate, 15% Potential Upside Ahead; Do You Own?

Dividend-paying FMCG stock, Godrej Consumer Products is recommended to accumulate owing to its focus on building product categories to drive growth. According to Elara Capital, these innovations are likely to pay off for the FMCG player. Thereby, the brokerage has set a target price of Rs 1,230 apiece with an Accumulate recommendation on Godrej. This would imply a nearly 15% rise in Godrej stock from the current market price.

In the trading week that ended on December 22nd, Godrej Consumer shares jumped by 3.52%. On Friday, the stock ended at Rs 1,073.90 apiece, with a market cap of Rs 1,09,840.68 crore. The stock is moving closer towards its 52-week high levels of Rs 1,101.55 apiece.

Year-to-date, the stock has gained more than 20% on BSE.

Godrej is also dividend-paying FMCG stocks and holds a consistent record in rewarding its shareholders. As per Trendlyne, Godrej has delivered a massive 73 dividends since October 2002. In the year 2023 alone, the stock declared dividends up to 500% amounting to Rs 5 per share. Currently, it has a dividend yield of 0.47%.

According to Elara Capital, Godrej Consumer Products (GCPL IN) is focused on elevating and expanding its product portfolio through innovation and democratization to drive penetration. The company is looking to introduce a new product in home insecticides (HI), which will focus on the efficacy, a potential game-changer.

Additionally, the brokerage's report pointed out that the company is entering into liquid space with the launch of liquid detergent, Godrej Fab, at a disruptive price of Rs 99 per litre in select southern markets, and it also will explore the body wash category. The recent launch of affordable hair colour packs at Rs 15 has been well received, and it is aimed at increasing market penetration and upgrading consumers from traditional formats, such as hair colour powder and henna.

Also, GCPL is in the process of launching a differentiated product in domestic HI, with a focus on boosting efficacy. Elara believes that this innovation has the potential to reshape the growth trajectory of the entire category.

Further, the company is poised for sustained double-digit constant currency (CC) growth in the international markets of Indonesia and the African Union (AU). In Indonesia, new product launches in the HI segment and go-to-market strategy are yielding positive results, ensuring growth in the medium to long term. Similarly, a revised go-to-market approach in the AU has bolstered performance in the western and southern regions, as per Elara.

Meanwhile, Elara expects the company's overall margin to rise to 22.9% in FY26E from 18.3% in FY23. This improvement would be driven by cost synergy and scale benefits in the recently acquired Raymond Consumer care business, a better mix in the domestic space due to the resurgence in HI, enhanced margin in the overseas businesses, and a simplified East Africa operation by shifting to a royalty model.

Hence, on valuation, Elara's note said, "We largely retain our estimates during FY24-25 and upgrade FY26 estimates by 3.7% to factor in a better margin profile. We reiterate that Accumulate with a higher TP of INR 1,230 from INR 1,120 on 45x (unchanged) FY26E P/E as we roll forward. However, we have yet to factor in the success of the new launch in HI into our estimates, which could lead to improved revenue growth and profitability."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.