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Playbook remains unchanged; positive outcomes set to continue

* Godrej Consumer (GCPL) reported a 6% YoY consolidated net revenue growth to INR33.8b (exactly in line); constant currency (CC) growth was 30% YoY in 4QFY24. The India business clocked 12% YoY revenue growth (5% organic) with a volume growth of 15% YoY (7% organic).

* In India, the home care and personal care segments registered 6% and 4% YoY growth, respectively. The HI category was hit by a subdued season, especially in the North and East. Personal wash clocked high single-digit volume growth, sustaining its market share gain. The hair color volume growth was in double digits. RCCL clocked a strong 22% YoY growth with a sales run rate of INR1.4b during the quarter.

* The international performance was hit by forex. Indonesia’s revenue was up 15% YoY (17% in CC) with a healthy UVG of 12%. GUAM’s revenue performance was hit by the devaluation of the naira; it posted +16% YoY growth in CC terms.

* GCPL clocked strong volume growth in FY24 and aims to deliver high singledigit volume growth in FY25. The company plans to keep expanding its TAM. It is also looking to gain share in rural markets by expanding its market reach. Under Project Vistaara 2.0, the company plans to double the outlet coverage and triple the village coverage. There are still various profitability levers (RCCL, Indonesia, and ROW) available for GCPL to further improve its margin metric.

* We raise our EPS by 1%/3% for FY25/FY26. We reiterate our BUY rating with a TP of INR1,550 (based on 55x FY26E EPS).

Strong volume-driven performance

Consolidated performance

* Volume growth remains strong: GCPL’s 4QFY24 consolidated net sales grew 6% YoY to INR33.8b (exactly in line). Consolidated sales grew 30% YoY in CC. Consolidated volume grew 12% YoY, and organic volume rose 9% YoY.

* Strong earnings growth led by margin expansion: The gross margin expanded 320bp YoY to 56.1% (est. 56.0%). EBITDA grew 14% YoY to INR7.6b (est. INR7.7b), PBT rose 20% YoY to INR6.9b (est. INR7.1b), and adj. PAT increased 22% YoY to INR5.7b (est. INR5.3b). As a percentage of sales, higher ad spending (+200bp YoY to 9%), lower other expenses (-65bp YoY to 15.1%), and higher staff costs (+15bp YoY to 9.6%) led to an EBITDA margin expansion of 170bp YoY to 22.5% (est. 22.8%).

* FY24 performance: GCPL’s net sales/EBITDA/adj. PAT grew 6%/26%/16% YoY. Consolidated sales grew 21% YoY in CC with volume growth of 10% YoY. The India business volume grew 13% YoY and Indonesia volume rose 11% YoY. The Board declared an interim dividend of INR10/share.

Standalone performance

* Net sales (including OOI) grew 12% YoY to INR20.3b in 4QFY24.

* India’s branded business volume jumped 15% YoY.

* Gross margin expanded 100bp YoY to 57.8%. EBITDA margin remained flat YoY at 26.6%.

* EBITDA grew 12% YoY to INR5.4b.

* In FY24, net sales/EBITDA grew 10%/20%.

International performance

* Segmental growth: India +12% and organic +5%; Africa, the US, and the ME +16% (CC); Indonesia +17% (CC); LATAM (including SAARC) +262% (CC).

Other key highlights

* The home care business grew 6% YoY and personal care rose 4% YoY.

* Park Avenue and KamaSutra sales grew 15% YoY (17% in CC) and volume increased 12% YoY. EBITDA margin, at 25.2%, improved 360bp YoY.

* The household insecticide volume grew in double digits.

Highlights from the Investor Meet 2024

* GCPL plans to increase its market share in rural areas by doubling outlet coverage and tripling village coverage through Project Vistaara 2.0. Retailers now have direct access to products, reducing the need for personal visits to procure stocks.

* GCPL is on track to drive Park Avenue and KamaSutra by continuing to innovate the product and communication. The company expects high double-digit volume growth and EPS neutrality by the end of FY25.

* In Indonesia, management has increased its spending on A&P, it has reached 6% of sales by FY24 (earlier ~3%-4%). The company has managed to reduce its fixed overhead costs by 120bp, and cut down on the number of product variations by 25% over the last two years to simplify the business.

* The Southern Africa business has been performing well, with double-digit growth and a healthy EBITDA margin of 20%. The business, however, is facing some challenges in the US, Chile, Western Africa, and Argentina, but management sees potential for improvement in those areas.

* Guidance: In India, GCPL’s medium-term aspiration includes achieving high single-digit volume growth and mid-to-high 20’s EBITDA margin. For Indonesia, its medium-term aspiration is high single-digit volume growth with a mid-20’s EBITDA margin. For ROW, management aspires to achieve mid-single digit volume growth with >15% EBITDA margin in the next two years.

* The ETR will be 28-29% for FY25 and 25% for FY26.

Valuation and view

* We raise our EPS estimates by 1/3% for FY25/FY26.

* GCPL has improved the India business sales growth in recent years. It has delivered industry-leading volume growth in the India business over 9MFY24, and is likely to record double-digit EPS growth over FY24-26E. The implementation of disruptive innovations, the introduction of access packs, expansion into new growth categories, and increased advertising expenditure are anticipated to contribute to a consistently robust growth trajectory in this high-margin and high-ROCE domestic business.

* The company is consistently working towards expanding TAM for the India business along with product innovation to drive frequency. Besides, there has been a consistent effort to fix the gaps in profitability/growth for its international business. We reiterate our BUY rating with a TP of INR1,550 (based on 55x FY26E EPS).

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