Leading Brands Growing In Overseas Markets, Buy FMCG Stock With Rs. 1000 Target Price: Sharekhan

Top brokerage firm Sharekhan is suggesting buying the stock of Godrej Consumer Products Ltd. The company is targeting consistent improvement in OPM through the route of premiumization and operating efficiencies in key geographies such as India, Africa, and Indonesia.

Stock To Buy: Target Price

The Current Market Price (CMP) of Godrej Consumer Products Ltd. is Rs. 907.80. Sharekhan has estimated a Target Price for the stock at Rs. 1000. This stock has the potential to give a 10.25% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 93,105 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 907.80
Target Price	Rs. 1000
Potential 1 year return	10.25%
52 week high share price	Rs. 1,072.20
52 week low share price	Rs. 660.05

Stock Valuation: Sharekhan

"Change in top management coupled with revamped strategies focuses on growth levers such as higher penetration, cross-pollination, simplifying business in key markets, and increased distribution to drive double-digit revenue growth in the medium term. The stock is currently trading at discount valuations of 44.7x/38.2x its FY2023/FY2024E earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs. 1,000," the brokerage firm said.

Double-digit growth for Africa business

Africa business's revenues grew by 22% y-o-y to Rs. 3,046 crore and OPM stood at 10% in FY2022. Strong growth can be attributed to 22% growth in West Africa (contributes 30-35% to Africa business's revenue) and 17% growth in South Africa region (20-25% of Africa business). Godrej Consumer Products Limited (GCPL) is strengthening its last-mile distribution, simplifying portfolio with SKU rationalization, focusing on relevant launches in key categories, investing in consumer awareness, and accelerating wet Hair/FMCG growth, which will drive consistent double-digit growth for Africa business. Africa business's margins are expected to scale-up from earlier levels of 10-12%, according to Sharekhan.

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Correction in palm oil prices: overall margins growth

According to the brokerage firm, "GCPL's OPM in Q1FY2023 was down by >400 bps y-o-y to 17%, affected by the sharp increase in palm oil, crude oil, and freight prices. Palm oil prices have corrected by >60% since their high of April 2022. Further, crude oil and freight prices corrected from their high due to lower demand. The recent correction in commodity prices augurs well for the company to improve its OPM in the quarters ahead. The company will pass on some benefits to consumers to improve sales volume. The company targets OPM to remain at 20-22% in the medium term."

Brands' growth in overseas markets

Household insecticide and wet hair are key growth pillars for the company in Africa. West African market (including Nigeria) saw strong consumer acceptance to GCPL's home insecticides (HI) products due to differentiated product offerings, which aided strong share gains in the last 9 months. Launch of GoodKnight power shots got a strong response and repeated purchases and it is focusing on launching liquid vaporizer under the brand, Good Knight Flash. In the next 2 months, the company will be launching HI products in Ghana.

Financial performance

The company's revenue in FY22 was recorded at Rs. 12,277 crore, which is expected to be at Rs. 13,609 crore in FY23. Their EBITDA in FY22 stood at Rs. 37 crore, which is expected to be at Rs. 33.1 crore in FY23. The company's adj. PAT in FY22 was recorded at Rs. 1,793 crore, which is expected to be at Rs. 2,024 crore in FY23.

Company Portfolio:

GCPL is a leading emerging market company with a turnover of more than Rs. 10,000 crore. The group enjoys the patronage of 1.15 billion consumers globally across businesses. GCPL is present in key product categories such as soaps, hair colour, and HI. The company's power brands include Godrej No. 1 soap, Godrej expert range of hair colours, and Good Knight. GCPL operates internationally in Indonesia, Latin America, and AUM (Africa, US, and Middle East) regions.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. 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.