Buy Godrej Consumer Ltd For Target Rs.1,050 by Motilal Oswal Financial Services Ltd
Strong revenue momentum; RM inflation remains a drag
* GCPL’s consolidated revenue grew 19% YoY to INR44.1b (in line) in 2QFY27, with volume growth at 8%, driven by broad-based momentum across regions. Consol. EBITDA grew 12% YoY to INR8.2b (in line), as elevated input-cost inflation led to a 300bp contraction in gross margin, limiting earnings conversion. India EBITDA grew 8% YoY, while international profitability remained strong, led by 43% EBITDA growth in GAUM and 12% growth in Indonesia.
* India revenue grew 13% YoY to INR26.3b (in line), with underlying volume growth of 7%, despite an estimated ~150bp impact from trade inventory correction. Home Care led with 19% value growth, while Personal Care grew 8%, aided by a favorable base. In Personal Care, price hikes and grammage cuts weighed on soaps, alongside inventory correction in larger packs.
* International revenue registered robust 34% growth. Indonesia delivered 20% sales growth and 8% UVG, supported by El Niño-led tailwinds for household insecticides and traction from the Stella LV relaunch. While weather provided a near-term boost, management expects healthy underlying growth to sustain going forward. GAUM continued to outperform, with revenue growing 40% YoY (23% CC) and UVG of 16%.
* High-single-digit input-cost inflation across India and Indonesia is expected to intensify mildly in 3QFY27. Management is prioritizing EBITDA growth over margin protection through calibrated pricing and cost savings. Further price increases are planned in soaps and liquid detergents, where margins remain below normative levels.
* Near-term margin pressure is likely to persist amid elevated commodity inflation. However, calibrated pricing and cost-saving initiatives should support absolute EBITDA growth. We expect international growth momentum to sustain, with Indonesia’s macros and weather-led tailwinds and capacity expansion in GAUM remaining key monitorables. GCPL maintained its FY27 guidance of high-single-digit standalone UVG and double-digit consolidated revenue and EBITDA growth. We maintain BUY rating with a TP of INR1,050, based on 35x Sep’28E EPS
Highlights from the management commentary
* Inflation across crude-linked derivatives, palm oil and other commodities was among the highest in years, with a high single-digit impact on India and Indonesia.
* Commodity inflation is likely to be mildly higher in 3Q vs. 2Q.
* Soaps and liquid detergents margins remain below normative levels, so more calibrated price increases are planned in these two categories.
* Soaps saw trade inventory correction, concentrated in larger SKUs, alongside a price-volume recalibration as rounds of industry price hikes play out.
* Godrej Fab maintained double-digit growth, with detergent volumes unaffected by inflation as the category benefits from formalization and a shift from powders to liquids.
Valuation and view
* We maintain our EPS estimates for FY27-FY29E.
* Management focuses on delivering high-single-digit UVG in India and doubledigit consolidated revenue and EBITDA growth in FY27. GAUM continues to deliver strong growth and profitability, while Indonesia’s momentum remains healthy. Elevated commodity inflation is likely to keep near-term margins under pressure. However, calibrated pricing and cost-saving initiatives should support absolute EBITDA growth, with margin recovery hinging on pricing realization and input-cost trends.
* The company is expanding its TAM by foraying into new, faster-growing categories, such as men’s face wash, stain removers and toilet cleaners, and continues to strengthen its core portfolio. Besides, the company has made consistent efforts to address gaps in profitability and growth across its international business. The company has guided for double-digit consolidated revenue and EBITDA growth in FY27. We model a 14%/13% revenue/EBITDA CAGR over FY26-29E. We maintain BUY rating with a TP of INR1,050, based on 35x Sep’28E EPS.
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