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We maintain our positive stance on GCPL, which is addressing the basics under its revamped leadership. We see structural actions strengthening Company’s fundamentals and maintain BUY with Sep-24E TP of Rs1,200/sh, on 46x P/E (at 10% premium to the last 5Y average forward P/E of 41x). GCPL's recent actions in the Africa cluster bode well, with its guidance of profitable growth backed by thrust on mid-to-high teen EBITDA margin in the medium term. As we shift its Kenya/Tanzania operations to a profit-sharing model, we see Cluster margin at ~15% by FY26E. While profitability of the GAUM cluster is likely to be strong with 37% EBITDA CAGR, reported topline CAGR would be 4%, in our view. We hoist our growth estimate for Raymonds operations, amid better execution; we also raise tax incidence to ~26%. This leads to a ~1% EPS nip for FY24-25E.

Godrej Consumer Products: Financial Snapshot (Consolidated)

Actions under way across five sub clusters in GAUM

GCPL has divided its GAUM cluster into 5 sub-clusters: a) East Africa (Kenya, Tanzania, Angola, Uganda), b) West Africa (mainly Nigeria, Ghana), c) Southern Africa (South Africa and Mozambique), d) USA (mainly Strength of Nature) and e) the rest (mainly Middle East, Zambia). GCPL sees profitable growth in South Africa, where it maintains focus on improving supply. For East Africa, after shifting its Angola/Uganda operations to the franchisee model, it is now making a similar shift in its Kenya/Tanzania operations. In West Africa, distribution in Nigeria has been shifted to a new partner, with favorable results. In USA, wet hair-care remains key; here GCPL is looking to start imports from Nigeria. Middle East remains an export destination, where focus is on FMCG segments.

Simplification, relevance and supply, vital for GAUM cluster

GCPL's entry into Africa has been quite haphazard, with acquisition of multiple entities. It has brand acquisitions in dry hair, wet hair, hair color, personal wash, home care and skin care, but generates bulk sales from dry hair. We estimate that ~60% of its business is concentrated in dry hair care, followed by 20-25% in wet hair care and the balance in other FMCG segments. Some actions undertaken by the company are reduction in SKUs, defocus on dry hair (to help reduce working capital), creation of branding in a fragmented market (to drive product pull), focus on supply chain, and operating with the local team.

Attending to basics for enhancing fundamental prospects; maintain BUY

We continue to see better business execution under the revamped leadership. Actions undertaken so far have started yielding results and are likely to improve financial delivery ahead. In this note, we effect changes to our model: i) shift Rs5bn revenue from the GAUM cluster in FY25E and consider Rs500mn royalty income; ii) for Raymonds, GCPL has better control now; we revise sales decline to 5% from 15% earlier; iii) given the geographic mix, its tax rate goes up, to 26%. Based on these changes, our earnings estimate gets revised down by 1% over FY24-25E and remains unchanged for FY26E.

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