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GCPL released its pre-quarterly update for 2QFY23. Here are the key highlights:

Macros:

* Rural markets’ growth momentum continued to be slower than urban markets.

* Management expects consumption to improve in 2HFY23 aided by healthy monsoon (apart from a few states) and moderation in commodity prices.

India business:

* Sales growth to be in high-single digit; three-year CAGR would be close to double digits.

* Volume to decline by mid-single digit; three-year CAGR to be in low-single digit.

* Personal Care/Home Care segments witnessed strong double-digit/mid-single digit growth.

Indonesia business:

* High base in hygiene portfolio would lead to low double-digit sales decline on constant currency basis.

* Ex-Hygiene portfolio, expect a high single-digit sales growth.

GAUM (Godrej Africa, the US, and the Middle East) business:

* Sales to grow in low teens on constant currency basis.

LatAm:

* Sales growth to be upwards of thirties on constant currency basis.

Consolidated level:

* Sales to grow in higher mid-single digit; three-year CAGR would be close to double digits.

* EBITDA should decline in mid-teens due to consumption of high-cost inventory, high marketing spends and weak Indonesia performance.

* Expect gross margin expansion in the coming quarters as commodities have corrected significantly.

Valuation and view

* With investments by the new CEO being focused on boosting growth in the high margin, high-RoCE domestic business, the company’s medium-term earnings growth outlook is strong.

* Valuation at 37.5x Sep’24E EPS is attractive, given the potential earnings CAGR of ~16% over FY22-24E. Maintain BUY with a TP of INR1,075.

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