Buy Godrej Consumer Products Ltd For Target Rs. 1,440 by Asit C Mehta Investment Interrmediates Ltd
India growth and margin improvement to pull up performance in H2FY26E
GCPL saw mixed performance in the quarter with topline largely as estimated, however, EBITDA saw outperformance of 4% vs our estimates due to lower employee expenses. PAT saw a negative deviation of 3% due to lower other income and extraordinary loss. Reported revenues stood at Rs 38,251 mn, up 4.3% YoY/ 4.5% QoQ, underpinned by volume growth of 3% YoY. EBITDA margins contracted by 155 bps YoY, standing at 19.2%, impacted by GST reforms related trade disruption. Accordingly, EBITDA declined by 3.5% YoY to Rs 7,333 mn. PAT followed suit with a decline of 6.5% YoY.
Consolidated volume growth slides due to GST-related impact in India; Continued traction in India ex-soaps
Consolidated volume growth came in at 3% for the quarter, vs. 8% in Q1FY26. Consolidated revenue growth also slowed down commensurately to 4.3% YoY from 9.9% in Q1. India standalone volume growth dropped to 3% YoY from 5% in Q1. Standalone revenue growth of 4% YoY included ~3-4% impact of the GST transition. The GST transition primarily impacted soaps portfolio, while the hair colour portfolio was impacted by trade confusion. India ex-soaps volume growth continued to be in double-digits (vs. mid-teens in Q1FY26). With continued double-digit traction in non-soaps portfolio and improvement in soaps, H2FY26E should see double digit revenue growth trajectory in H2FY26E.
Traction in GAUM continues, while Indonesia weakness persists
In Indonesia, while UVG grew by 2% (flat in Q1), revenue declined by 6.6% YoY (-3.7% YoY in Q1) due to ~4% impact of change in distribution arrangement. This negative impact in revenue will continue for 3 more quarters, while volume growth will likely be in the 2-4% range. GAUM saw a strong 15% YoY growth in constant currency terms, further supported by FX, leading to 25% reported growth. However, this growth may eventually normalize to high single digit growth levels.
Margins to see improvement from coming quarters
With the benefit of lower palm oil duty and price stabilization, India margins will inch up to be in the normative band of 24-26% in H2FY26E (vs. 21.7% in H1FY26). GAUM will benefit from better seasonality in margins in H2FY26E, while Indonesia and LATAM margins may remain steady.
TAM expansion through organic and inorganic efforts continues
Organically, GCPL entered the Rs 30 bn toilet cleaning market with launch of ‘Godrej Spic’. Inorganically, will acquire Muuchstac to enter in men’s face wash category, valued at Rs 10 bn and growing at 25% CAGR.
Valuation and view
With improving growth and margin traction in India in the coming quarters, and continued strong performance in GAUM, GCPL is set to continue its double-digit growth trajectory in the coming quarters, after a slight slowdown in growth in the quarter gone by. Margin delivery is also expected to see an improvement, driven by reduced impact of palm oil on margins in India and cost rationalization measures. We continue to like the TAM expansion journey, through both internal brand launches as well as bolt on acquisitions in white spaces.
We have made small modifications to our estimates leading to 0.8/-0.9/-1.1% change to our FY26/27/28E Adj. EPS. We anticipate a Revenue/ EBITDA/ Adj. PAT CAGR of 9.4/12.4/17.2%, respectively over FY25-28E. On 4-qtr ending Sep-27E EPS of Rs 28.2 (earlier Rs 28.5 earlier) and with a P/E of 51x (unchanged), we arrive at a price target of Rs 1,440 (earlier Rs 1,450). With fundamental prospects intact, we believe the CMP is at attractive levels. With an upside potential of 28.5%, we retain our “BUY” rating on the shares of GCPL.
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