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We retain ADD on GCPL (Dec-24E TP of Rs1,325/sh), as the stock priced in positives on better execution, backed by the management addressing business basics and simplifying operations. Management is now dealing with two key concerns in consol. operations: i) the new molecule-based HI offerings (across India, Indonesia), and ii) improved show in the GAUM cluster. With a view to enhance growth potential and profitability in the GAUM cluster, GCPL has announced divestment of its Tanzania operations (shift to franchisee model). With its Kenya business yet to be reorganized, GCPL will shift its overall revenue of Rs5bn to the franchisee model, which will drive ~Rs500mn in annual profit. Management sees cluster margin expansion to over 15% in the next couple of years (in line with our estimate) vs. high single-digit margin in the last 5 years.

East Africa reorganization: Tanzania effected; Kenya to be actioned soon

In line with management strategy of restructuring East Africa operations, where it has relatively low profitability, the company is divesting its stake in ‘Godrej East Africa Holdings Limited, Mauritius’, along with its step-down subsidiaries, viz. operating companies in Kenya and Tanzania (with revenue of Rs1.4bn for FY23), to HKG Africa Weave Limited, for USD3.5mn (~Rs300mn). The selling unit's net-worth of Rs650mn represents ~5% of GCPL’s net-worth. This will lead to a negative revenue impact of ~Rs700mn for Q4FY24. With this, GCPL has reorganized operations in Uganda, Angola, and Tanzania; the company now has to effect reorganization of its Kenya business.

Business reorganization to aid growth and better profitability in GAUM cluster

GCPL has divided its GAUM cluster into 5 parts: a) East Africa (includes Kenya, Tanzania, Angola, Uganda); b) West Africa (mainly Nigeria, Ghana); c) Southern Africa (includes South Africa, Mozambique); d) USA (mainly Strength of Nature); e) Rest (mainly Middle East, Zambia). GCPL sees profitable growth in South Africa; here it focuses on improving supply. In West Africa, GCPL has shifted distribution to Nigeria and is content with the progress. For its US business, wet hair care remains key; it is looking to start imports from Nigeria. Middle East remains an export destination; focus is on FMCG segments. For coming couple of years, GCPL eyes over 15% margin in the cluster, aided by East Africa reorganization and simplification of business (~200bps). With reorganization of the East cluster, GAUM cluster revenue contribution would ease, from ~26% in FY23 to <20% in FY25, while absolute profit would see expansion (aided by royalty plan).

Valuations factoring execution; we maintain ADD on limited upside

Under the new leadership, execution has seen a facelift. The new management is not only simplifying businesses, but is focused on category disruptions, which aid share gains. The stock reacted to positive developments like: a) expected efficacious launches in HI; b) profitable thrust in GAUM cluster. We retain ADD/TP of Rs1,325, on 50x P/E.

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