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Healthy revenue performance on YoY basis: Godrej Consumer Products (GCPL) posted its Q4FY23 revenue growth of 9.8% YoY with an underlying volume growth of 6% while sequentially revenue de- was subdued and de-grew by 11%. The growth was largely driven by strong growth in India business and improving growth across international markets. In addition, robust traction and double digit growth in the home and personal care segment too helped growth.

Gross margin saw decent improvement while EBITDA & PAT margin improved YoY: The company’s gross margin improved by 343bps YoY and 175bps QoQ to 52.9% led by easing raw material prices, lowering of inventories and cost measures. Further, a mixed trend was seen on the EBITDA and PAT front, as EBITDA grew by 37% YoY while a decline of 11.8% QoQ and PAT grew by 24.5% YoY while was down by 17.2% QoQ. Further, EBITDA and PAT margins improved by 399bps and 167bps YoY while it remained muted sequentially and down by 16bps and 105bps QoQ. Going ahead, the management plan is to improve margins while keeping its focus on lowering controllable cost and managing spends on advertisements.

Concall highlights: 1) Have reduced inventory which led to improve gross margins for the quarter. 2) Plan is to continuously reduce controllable cost but at the same time Invest in advertisement & promotional activities and mix of this would improve margins. 3) Focus on recovery in Indonesian business. 4) For FY24, the company expects volume led growth and minimum price growth. 5) Intend it to continue to scale Home Insecticides business by premiumization, innovation and market development which will lead to market share gain. 6) Conservative guidance provided for recently acquired Raymonds FMCG business of deodorants and sexual wellness products as there would be changes in sales, distribution, inventories, etc and will keep a watch on how synergies work. 7) Plan is to grow organically for products with low market development while for products with strong presence and high market development, their plan is to acquire that brand/products. 8) Body wash is the highest selling product in the Indonesian market. 9) In the south consumers have moved from powder hair colour to shampoo hair colour while in North preference is towards crème hair colour.

Valuation: GCPL’s year on year performance was steady and also management tone remained positive. The company’s strategy is to innovate new products and invest in under-penetrated categories, continue to invest behind its brands and expand distribution both in India as well as internationally. In addition, their focus is to drive volume led growth, increase media investments and at the same time reduce cost & drive profitable growth with expansion in margins. Also in the next 1-2 quarters their plan is to drive synergy with recently acquired brands in deodorants and sexual wellness of Raymonds FMCG business. On the financial front, we have estimated its revenue/EBITDA/PAT to grow at a CAGR of 15%/19.5%/23% over FY23-25E. We remain optimistic on GCPL growth prospects and have maintained a Buy on the stock with a target price of Rs 1,178.

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