Buy Godrej Consumer Products Ltd For Target Rs. 1,400 By Emkay Global Financial Services Ltd
We maintain our positive stance on GCPL, with Jun-26E TP of Rs1,400 (on 50x P/E); we retain BUY, as we continue to see enhanced execution. GCPL’s FY25 Annual Report not only mentions the achievement and misses, but also delves into factors leading to their outcome. In FY26, we expect GCPL’s India business to accelerate growth and recover margin and Indonesia business to be weak hit by the competitive surge, while Africa cluster is likely to stage topline recovery and see steady margin improvement. We now expect 9% topline/18% earnings CAGR over FY25-28E. We see enhanced execution keeping valuation near +1SD.
High single-digit growth aspirations for FY26
GCPLs’ attempt to achieve high single-digit volume growth in the SA business in FY25 has been impacted by the weak season in HI and an unusual inflationary setting in Soaps. For FY26, the mgmt is looking at mid-to-high-single-digit volume growth in India. Thrust in India would be on deodorant, household insecticide, liquid detergent (revenue target: Rs5bn), and set-up of pet care. In Indonesia, GCPL achieved 6% volume growth in FY25. We see flat volume for its Indonesia business in FY26, amid competitive stress. In GAUM, growth is likely to be ~20%, on a low base. The mgmt aspires to achieve high singledigit consol revenue growth. It pointed to its FY26 focus being on fewer, bigger and better bets that can drive up scale, margin, and future readiness. Mgmt effort ahead is toward centralized innovation, with a cross-country replicable communication medium. Given the wider internet penetration, we believe it would be prudent to simultaneously effect innovations across global markets, to build a fair connection with consumers.
Thrust on profitability enhanced in FY26; expectations of margin recovery
Mgmt focus in FY25 was on maintaining profitability in India while enhancing it in its International business. While the former was impacted by the sudden inflationary setting in palm oil, the latter beat its own target. FY25 margin for the International business stood at 17% vs 13% in FY24 (10% in FY23). In FY26E, we expect price actions and easing in RM cost to help recovery in margin, in India. As GCPL is working on strategic bets, the mgmt is looking at enhancing the balance sheet and cash generation. The company has improved its working capital (WC) position in India to -1day, while work is still pending on the international front. On the back of thrust on profitable operations, GCPL has significantly enhanced its RoCE for the Africa business (10%, like in Indonesia; lower vs 27% in India). Adjusted for intangibles, RoCE for Africa expanded to 30%, while that for India stood at 54% (down by 400bps YoY) and at 22% for Indonesia (down by 300bps YoY). Its dividend payout for FY25 stood healthy at 83%. Ahead, GCPL targets payout ratio to average at ~50% (±20%) of PAT.
Focused execution to aid better earnings ahead; maintain BUY
Mgmt thrust on execution is visible in its portfolio actions, which we see aligning with evolving needs. On better earnings outlook, we retain BUY with Jun-26E TP of Rs1,400.
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