Buy Godrej Consumer Ltd for the Target Rs. 1,450 by Motilal Oswal Financial Services Ltd
Focus on strengthening the core and expanding TAM
* Godrej Consumer (GCPL)’s FY25 strategy focused on 1) expanding the existing categories by innovating products across various sizes and price points while broadening distribution to enhance consumer reach, 2) streamlining operations through radical simplification by reducing SKUs, personnel, and processes, and 3) prioritizing sustainability and social responsibility alongside profitability, under the principle of "People and Planet alongside Profit".
* Going ahead, GCPL will continue focusing on 1) premiumization, which involves launching premium innovations, entering new premium categories, and expanding premium channels; 2) efficiency improvement, in which GCPL plans to enhance efficiency by investing in manufacturing capabilities and brands; and 3) affordability in rural markets, in which the company aims to drive growth in rural areas by introducing access packs to cater to price-sensitive consumers.
* We expect the company to deliver a sales/EBITDA/Adj. PAT CAGR of 12%/13%/19% over FY25-28. The stock currently trades at 57x and 47x P/E on FY26E and FY27E, respectively. We reiterate our BUY rating on the stock with a TP of INR1,450.
Muted demand and volatile RM prices hurt the India business in FY25
In FY25, GCPL delivered 5% volume growth, which was below its internal expectation of high-single-digit growth. It was largely due to a sharper-than-anticipated consumption slowdown in the second half (particularly in urban areas). The rise of incense sticks using illegal molecules like metofluthrin was addressed by introducing renofluthrin—a superior, made-in-India molecule with medium-term exclusivity— leading to share gains. Goodknight Electrics saw double-digit volume growth. Other notable successes include market share gains in Air Care (grew 20% YoY with 700bp market share gains), rapid scale-up of Godrej Fab (INR2.5b ARR), and strong growth in hair color through affordable crème SKUs and enhanced marketing initiatives. The company’s India strategy is centered around 1) profitable share gain in soaps, 2) new growth levers for Household Insecticides, and 3) expansion into under-penetrated, future-facing categories such as air care, body wash, and liquid detergents.
Park Avenue and Kamasutra – streamlining distribution
FY25 was the first full year post-acquisition, facing challenges from wholesaleheavy trade, discounting, and fragmented channels. While GCPL aimed for 20–25% sales growth, it achieved ~10% growth, reflecting market complexities. The company has strategically rationalized the trade inventory and number of SKUs, which temporarily reduced the revenue base to INR5b. The company has reactivated its marketing expenses and tripled advertising expenditure. GCPL had focused on improving product mix, adding supply chain efficiencies, and cutting down overhead costs. As a result, segment EBITDA doubled to INR1b. The company is continuing with new product formats and long-term brand-building efforts. GCPL is targeting the chemist and cosmetics channel to scale up its distribution reach.
International operations focus on improving profitability and WC efficiency
The Indonesian business achieved a 5% topline growth despite major multinational competitors facing consumer backlash and declining sales. The medium-term target for Indonesia is to achieve a high single-digit volume growth with an EBITDA margin in the mid-20s. In FY25, the rest of the world (ROW) reported a net sales decline of 8%, mainly due to go-to-market changes in West Africa and political instability in the South African cluster. GCPL continued to focus on improving profitability and working capital efficiency. The company achieved the highest-ever EBITDA margin of above 15% and EBITDA of around INR4b, with a margin expansion of ~380bp driven by cost savings and a stable forex environment. GCPL plans to sustain growth momentum in Argentina and Chile by focusing on profitable expansion strategies. GCPL aspires to achieve mid-single-digit volume growth in ROW with a >15% EBITDA margin over the next two years.
Medium-term aspirations
GCPL’s medium-term aspiration includes the India business achieving high singledigit volume growth and mid-to-high 20s EBITDA margin. Indonesia is likely to achieve high single-digit volume growth with a mid-20s EBITDA margin. ROW aims to achieve mid-single-digit volume growth with a >15% EBITDA margin.
Valuation and view
* GCPL, under the leadership of Mr. Sudhir Sitapati, has added numerous growth levers over the last few years. The company has not only strengthened its core portfolio in India, but it has also added new segments. RCCL acquisition has further improved the company’s presence in the personal care portfolio. Such initiatives led to better volume delivery for the company as compared to the peer group. FY25 has seen multiple headwinds, i.e., palm oil inflation, urban slowdown, etc., for the India business. We expect a growth recovery in FY26, with macro-side drives also supporting the underlying growth. International business was hit by currency devaluation and the slump sale of the East African business. With stability in Indonesia, we expect better performance in the remainder of FY26. We model an 11%, 13%, and 19% revenue, EBITDA, and APAT CAGR during FY25-28E.
* We reiterate our BUY rating with a TP of INR1,450 (based on 50x Jun’27E EPS).
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