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Innovation to pay off

Focus on building product categories to drive growth

Godrej Consumer Products (GCPL IN) is focused on elevating and expanding its product portfolio through innovation and democratization to drive penetration. The company is looking to introduce a new product in home insecticides (HI), which will focus on the efficacy, a potential game-changer. Additionally, it is entering into liquid space with the launch of liquid detergent, Godrej Fab, at a disruptive price of INR 99 per liter in select southern markets, and it also will explore the body wash category. The recent launch of affordable hair color packs at INR 15 has been well received, and it is aimed at increasing market penetration and upgrading consumers from traditional formats, such as hair color powder and henna.

Innovation in HI could be a game-changer

GCPL is in the process of launching a differentiated product in domestic HI, with a focus on boasting efficacy. This innovation has the potential to reshape the growth trajectory of the entire category. It has successfully implemented similar strategies in Indonesia and Bangladesh where the company has posted robust double-digit growth. With a patented and exclusive formulation, it will stand to gain a significant first-mover advantage, anticipating revival of growth in the HI segment, which reported a low single-digit growth during FY18-23.

Positive outlook for the international business

The company is poised for sustained double-digit constant currency (CC) growth in the international markets of Indonesia and the African Union (AU). In Indonesia, new product launch in the HI segment and go-to-market strategy are yielding positive results, ensuring growth in the medium to long term. Similarly, a revised go-to-market approach in the AU has bolstered performance in the western and southern regions.

Margin improvement on the cards

We expect overall margin to rise to 22.9% in FY26E from 18.3% in FY23. This improvement would be driven by cost synergy and scale benefits in recently acquired Raymond Consumer care business, a better mix in the domestic space due to resurgence in HI, enhanced margin in the overseas businesses, and a simplified East Africa operation by shifting to a royalty model.

Valuation: retain Accumulate with a higher

TP of INR 1,230 We largely retain our estimates during FY24-25 and upgrade FY26 estimates by 3.7% to factor in a better margin profile. We reiterate Accumulate with a higher TP of INR 1,230 from INR 1,120 on 45x (unchanged) FY26E P/E as we roll forward. However, we have yet factor in the success of new launch in HI into our estimates, which could lead to improved revenue growth and profitability.

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