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Pricing leads to near double-digit India sales growth

GCPL released its pre-quarterly update for 4QFY22. Here are the key highlights:

* Macros: The Indian FMCG industry witnessed a slowdown in consumption over the past few months, led by unprecedented global commodity inflation that resulted in successive price hikes and which, in turn, impacted volumes. GCPL was also impacted by high commodity inflation and underperformance in the Indonesia business.

* In India, GCPL expects to deliver near double-digit sales growth (two-year CAGR in the early 20s) in 4QFY22, entirely driven by price hikes.

* Both Home Care and Personal Care categories saw a mixed performance. While Personal Care continues to clock double-digit growth, led by price hikes in Personal Wash, Home Care witnessed a soft performance on a high base due to a muted performance of the Home Insecticides and Air Freshener portfolio.

* In Indonesia, GCPL expects a high teen sales decline in constant currency (CC) terms, led by weakness in the Hygiene category after a reduction in the number of COVID-19 cases. The management expects short-term challenges to continue and a gradual recovery in the medium term, led by category developments and distribution expansion in the GT.

* In GAUM (Godrej Africa, the US, and the Middle East), the growth momentum continued across most key countries that it operates in. It expects to deliver CC sales growth closer to the mid-teens, with a focus on driving sustainable profitable sales growth.

* In LatAm, GCPL expects to deliver strong double-digit CC sales growth and a muted performance in the SAARC business.

* At the consolidated level, GCPL expects to deliver a higher than mid-singledigit sales growth, and a mid-teen two-year CAGR. In FY23, it expects to deliver early double-digit sales growth.

* The management expects to deliver lower operating margin on a YoY basis, led by unprecedented input cost inflation and weak performance in the Indonesia business.

* Valuation and view:

* Valuations at 34x Mar’24E EPS are attractive, given the potential earnings growth of over 13% (after a breather in the near term on account of transient commodity cost pressures). Valuations are at a significant discount to the average of its Staples’ peers.

* There is no change to our EPS forecasts. We maintain our Buy rating on the stock, with a TP of INR1,000 (valuing it at 45x Mar’24E EPS), an upside of 33%.

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