Buy This Salient FMCG Stock With Rs. 1,075 Target Price, Board Guiding 150bp Margin Expansion

Brokerage firm Motilal Oswal is suggesting buying the stock of Godrej Consumer Products. The company is aiming to increase direct expansion to cover 120k stores by the middle of CY23.

Stock To Buy: Target Price

The Current Market Price (CMP) of Godrej Consumer Products is Rs. 885. Motilal Oswal has estimated a Target Price for the stock at Rs. 1,075. This stock has the potential to give a 22% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 92,451 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 720
Target Price	Rs. 830
Potential 1 year return	15.00%
52 week high share price	Rs. 940
52 week low share price	Rs. 469.05

Financial performance

The company's sales in FY22 was recorded at Rs. 122.8 b, which is expected to be at Rs. 137.1 b in FY23. Their EBITDA in FY22 stood at Rs. 24.0 b, which is expected to be at Rs. 25.3 b in FY23. The company's adj. PAT in FY22 was recorded at Rs. 17.9 b, which is expected to be at Rs. 17.1 b in FY23.

Stock Valuation: Motilal Oswal

According to Motilal Oswal said, "Better capital allocation, a moratorium on acquisitions, and an improved performance in the GAUM region was already witnessed before the new CEO took command in Oct'22. As investments by the new CEO are aimed at boosting growth in the high margin, high RoCE domestic business, its medium-term earnings growth outlook remains strong. GCPL remains among our top picks in the Staples space. Valuations, at 37.5x Sep'24E EPS, are attractive, given the potential earnings CAGR of ~16% over FY22-24. We maintain our Buy rating with a target price of Rs. 1,075."

Margin expansion

The commentary on GCPL's GAUM business is improving, with the management guiding at a margin expansion of 150bp YoY in FY23, despite an adverse currency exchange rate. Excluding the same, the improvement in margin would have been 600-700bp. Increasing salience of the FMCG business and growing distribution in the GAUM region will provide better sales and earnings visibility over the medium term.

Global Presence

The US constitutes 20-25% of the overall business, and primarily caters to the Wet Hair category. In GAUM, West Africa (i.e. Nigeria and Ghana) accounts for 30-35% of the business, followed by South Africa (at 25-30%), Kenya, and smaller nations. From a category perspective, 55% is Dry Hair and the rest is FMCG, of which Wet Hair is a major part. Over the past 10-12 quarters, both the Dry and Wet Hair category is growing at double-digits in Africa. In Nigeria, GCPL currently has a presence in ~80k stores from ~10k stores at the end of CY20.

Company Portfolio:

Godrej Consumer Products is a leading emerging markets company. As part of the over 125-year young Godrej Group, we are fortunate to have a proud legacy built on the strong values of trust, integrity and respect for others. At the same time, we are growing fast and have exciting, ambitious aspirations.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.