Buy Godrej Consumer Ltd for the Target Rs 1,300 by Motilal Oswal Financial Services Ltd
In-line overall; miss on India margin
* Godrej Consumer’s (GCPL) consolidated revenue grew 19% YoY to INR42b (in line), while volume growth stood at 9%, driven by broad-based momentum across regions. Consol. EBITDA grew 15% YoY (inline). India EBITDA rose 11% YoY, while international profitability improved sharply, led by 42% EBITDA growth in GAUM and continued recovery in Indonesia (+11% YoY on a base of -13%).
* India revenue increased 12%, with underlying volume growth of 7%. Home Care and Personal Care grew 12% and 11%, respectively. Notably, soaps returned to positive volume growth after several weak quarters, with management expecting gradual improvement ahead. Household Insecticides (HI) saw weather-led double-digit decline in June. GCPL gained market share in Incense Sticks (now at 16% share) after nearly a decade. The company implemented ~5% price hikes across India in 1Q, with a similar pricing carryover expected in 2QFY27.
* International revenue registered robust 30% growth, led by a 47% growth in GAUM (25% CC), while Indonesia delivered 15% sales growth (-4% in base). Growth in Indonesia was broad based, aided by favorable El Niño conditions. GAUM continued to benefit from strong FMCG. GCPL indicated that ~75% of future GAUM growth is expected to come from the FMCG portfolio versus a 50:50 FMCG/Dry Hair mix in FY26.
* India GM contracted 280bp YoY to 47.8% (miss) due to elevated commodity inflation, while EBITDA margin contracted just 10bp YoY to 21.8% (in line), aided by lower media spends. EBITDA grew 11% YoY to INR5.6b (in line). Management expects India EBITDA margin to recover to the 22-26% normative range by 2HFY27, assuming commodity costs stabilize. Further, management remains confident of exceeding its FY27 revenue guidance, while India volume growth is expected to stabilize around 8%.
* India business continues to deliver healthy volume-led growth, with GCPL gaining HI market share, while speedboats continue to scale. Near-term commodity inflation persists; however, management expects India margins to recover in 2HFY27 and remains confident of exceeding its FY27 revenue guidance. We expect continued improvement in international profitability, led by recovery in Indonesia and strong momentum in GAUM. The company has guided for double-digit consolidated revenue and EBITDA growth in FY27. We model 15% revenue and EBITDA CAGR each over FY26-28E. We reiterate BUY with a TP of INR1,300 (based on 45x Mar'28E EPS).
Highlights from the management commentary
* Volume-led sequential growth was driven by stable performance in India, a turnaround in Indonesia, and strong FMCG expansion in Africa.
* GCPL raised average prices in India by 5% in 1Q and expects a similar sequential pricing carryover into 2Q. No further post-quarter hikes are planned as Brent crude remains volatile but manageable in the USD80 to USD85 range.
* El Niño conditions introduced weather volatility, risking agricultural output and rural demand. For India, a highly dry and hot June (contrasting with last year’s heavy rainfall) led to a double-digit volume decline in HI. The first half of July was also weak. However, a warmer winter is expected to act as a demand tailwind for HI in 2HFY27. In Indonesia, El Niño acted as a strong positive catalyst for HI demand, driving earlier-than-expected growth in 1Q with further benefits expected in 2Q.
* Management remains firmly on track to deliver full-year FY27 guidance and expects to outperform in select areas, particularly on revenue growth
Valuation and view
* We maintain our EPS estimates for FY27-FY28E.
* Management remains focused on delivering sustained high-single digit volume growth in India while improving efficiencies across the value chain. The GAUM business continues to witness strong profitability momentum, while Indonesia's recovery is gaining traction with broad-based growth across categories. Despite elevated commodity inflation, management expects India margins to recover in 2HFY27 and remains confident of exceeding its FY27 revenue guidance.
* The company is expanding its TAM by foraying into new, faster-growing categories, such as men’s face wash 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. It has guided for double-digit consolidated revenue and EBITDA growth in FY27. We model 15% revenue and EBITDA CAGR each over FY26-28E. Given the growth-centric focus, we remain constructive on GCPL and reiterate our BUY rating with a TP of INR1,300 (based on 45x Mar’28E EPS).
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