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We maintain our positive stance on GCPL, based on our expectations of an improved show on the back of multiple initiatives across geographies under the new leadership. Management continues with corrective actions—this time, it took a call to move its East Africa operations to a franchise model, which will lead to a revenue shift of Rs5bn in return for Royalty of ~10%. We see this as an apt move, as the business has been a drag and logging losses. Q2FY24 results are in line with estimates, with net sales/EBITDA/adj PAT growing 6%/30%/18%. Regarding Inorganic, the Raymond portfolio fared better, with 7% India sales contribution, and turned EBITDA-positive. The BOD declared a dividend—of Rs5/sh (with aim to keep Payout at 50% for FY24)—after 3years. We maintain our estimates/BUY rating; Sep-24E TP: Rs1,200/sh (on 46x P/E).

Godrej Consumer Products: Financial Snapshot (Consolidated)

India sales grow 9%; better margin aided the 30% EBITDA growth

India-branded sales saw 9% growth and volume grew ~11%. The Raymonds portfolio (inorganic) contributed ~7% to sales, turning EBITDA-positive (vs. loss in Q1), and came in better than our estimate. Organic sales grew 1.6%, with ~4% volume growth. Q2FY24 growth was impacted by: a) a muted show in HI (August remains a dry month), b) poor show in hair color, and c) price cuts in soap (volume grew by a low single-digit). Revenue from Home Care grew 5% YoY, while that from Personal Care grew ~13% (Organic revenue fell 1% YoY). Organic EBITDA grew 31%, with ~28% EBITDA margin, expanding by 600bps YoY. From a demand outlook, the K-shaped recovery continues, with premium offerings doing well, while mass offerings stay under pressure.

International revenue grows 2%, but better margin aids 8% EBITDA growth

GAUM-cluster reported sales declined 5% (hit by the currency weakness), while constant currency growth stood healthy at 17%. As a part of its initiative to reorganize operations, the company is looking to shift ~Rs5bn in revenue (largely dry hair care) in Q4, from East Africa to a franchise model, and in return collect ~10% Royalty (vs. losses now). GAUM cluster EBITDA grew 50% YoY in Q2, driven by a 310-bps YoY expansion in EBITDA margin to 8.5%. Revenue from Indonesia grew 16% YoY, with 14% constant currency growth. EBITDA grew 21%, with ~70bps expansion in EBITDA margin to 20.6%. Other countries put up a muted show, with growth of 5% and EBITDA margin of -1%. Management remains confident of sustained margin expansion in international business.

Corrective actions reinforce outlook; maintain BUY

Based on quarterly actions by the new management, we see a clear strategy being framed to enhance not only the structural outlook but also profitability. Adjusted for external factors, we see the company putting up an improved show in a relatively muted demand setting. With in-line Q2 results, we retain our estimates, though we have yet to effect a new arrangement for East Africa. We retain BUY, with Rs1,200 TP (on 46x P/E).

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