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Steady India recovery; currency impacts international business

* Godrej Consumer (GCPL) reported a 3% YoY decline in consolidated net revenue to INR33.3b (est. INR36.3b). In constant currency (cc), revenue grew 11% YoY. India business clocked 9% YoY revenue growth (6% organic) with healthy volume growth of 8% YoY.

* In India, home care and personal care segments registered 8% and 6% YoY growth, respectively. HI category was stable and saw low single-digit volume growth, impacted by heatwaves. Personal-wash saw low single-digit volume growth but sustained market share gains. Hair Color volume growth was flat due to fewer wedding dates. RCCL revenue was INR1.53b.

* International performance was hit by unfavorable currency. Indonesia revenue was up 3% YoY (11% in CC) with healthy UVG of 7%. GUAM revenue was hit by the devaluation of Naira and streamlining of trade inventory. GAUM organic revenue declined 25% (-10% in cc terms).

* GCPL posted strong volume growth in FY24 and aims to achieve high singledigit growth in FY25. The company keeps expanding its TAM and looks to gain share in rural markets and all channels. Under project Vistaara 2.0, the company plans to double its outlet coverage and triple its village coverage. A price hike in India business will improve its revenue trajectory in the coming quarters. We believe the growth uptrend in India business and an improving operating margin print will help GCPL sustain healthy earnings growth in FY25. We reiterate our BUY rating with a TP of INR1,700 (based on 60x Jun’26E EPS).

India recovery sustains; International business impacted by currency

Consolidated performance

* Strong volume growth: Consol. net sales declined 3% YoY to INR33.3b (est. INR36.7b), partially affected by the sale of a part of its Africa business. Organic sales declined by 1% YoY due to the currency impact. Consolidated sales rose 11% cc YoY (9% organic). Consolidated organic volume growth was 2%. India volume growth was 8% YoY.

* Improving operating margin: GM expanded 210bp YoY to 55.9% (est. 54.6%). As a percentage of sales, ad spending increased by 60bp YoY to 9.9%, while other expenses declined by 70bp YoY to 8.4%. EBITDA margin expanded by 200bp YoY to 21.8% (est. 21.7%).

* Double-digit PAT growth: EBITDA grew 7% YoY to INR7.3b (est. INR7.9). PBT rose 18% YoY to INR6.6b (est. INR7.2b). APAT grew 25% YoY to INR4.7b (est. INR5.0b).

* International Performance: Indonesia revenue grew 3% (11% in CC terms) with volume growth of 7%. Indonesia business EBITDA margin expanded by 400bp YoY to 23.3%. GAUM organic revenue fell 25% (-10% in CC). Volume declined due to one-time sell-in in base and streamlining of trade inventory. GAUM EBITDA margin expanded 660bp YoY to 14.4%, led by gross margin expansion and mix improvement. LATAM clocked 7% revenue growth with 5% EBITDA margin (1% YoY).

* Standalone performance: Net sales (including OOI) grew 8% YoY to INR21.6b. India business reported volume growth of 10%; organic volume growth was 8%. Home care business saw 8% growth and personal care posted 6% growth. GM contracted by 60bp YoY to 56.4%. EBITDA margin remained flat YoY at 24.7%. EBITDA grew 8% YoY to INR5.3b.

* Entry in pet care market: Godrej Pet Care (GPC), a subsidiary of GCPL, has entered the INR50b pet care market in India, which has strong double-digit growth potential for the coming decades. GCPL will invest INR5b in GPC over five years and expects it to become cash positive afterward. GAVL will be the manufacturing and R&D partner.

Highlights from the management commentary

India business will see pricing benefits from 2QFY25 onward. Volume growth is expected in high single digits with low double-digit revenue growth in the coming quarters.

* Due to additional expenses for RCCL, the company has lowered its FY25 EBITDA estimate to ~INR1.5b (in line with our estimates) from INR1.6b earlier. Before the acquisition, RCCL reported EBITDA of ~INR600m.

* High interest rates in African markets may continue to hurt volume growth for the next few quarters, but this does not significantly affect off-takes or profits.

Valuation and view

* We broadly retain our FY24/FY25 EPS estimates.

* GCPL has seen improved sales growth in its India business in recent years. It has delivered industry-leading volume growth in the India business over 9MFY24, and it is likely to record a 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 toward 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 INR1,700 (based on 60x Jun’26E EPS, earlier 55x).

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