Buy Godrej Consumer Products Ltd for the Target Rs 1,100 by Emkay Global Financial Services Ltd
GCPL’s 2Q results were a miss on EBITDA/PAT. Revenue growth was strong at 19% (in line), while EBITDA/PAT grew 12%/9% yoy and missed expectations by 2%/5%. Volume growth was strong at 8% at consolidated level and 7% for India. Growth was led by home care, while personal care lagged. Indonesia and GAUM continued to exceed growth expectations. However, margins remained under pressure, with gross margin contracting by 300bps yoy (-40bps qoq) due to higher input costs. EBITDA margin decline was lower at 120bps yoy due to lower A&P spends (+2% yoy). GCPL reiterated its FY27 guidance of double-digit growth in consolidated revenue and EBITDA, which we believe is achievable. However, deteriorating macros pose a risk. We cut our FY27-29E earnings by 3-6%, mainly due to lower margin assumptions as we expect input costs to remain elevated for longer. We also cut our valuation multiple by ~9% to factor in the increasing uncertainty due to El Niño, inflation, and overhang of the pending India CEO appointment. We expect sales/earnings CAGR of 12%/15%, which is higher than most peers. Hence, we maintain BUY while cutting our TP by 12% to Rs1,100 (from Rs1,250), based on 39x Sep-28E EPS.
2QFY27 result summary
Revenue growth was strong at 19% yoy and in line (15% cc growth), benefiting from a low base and currency tailwinds and despite a 150bps impact in India business due to inventory correction. Consolidated volume growth was healthy at 8% (9% in 1QFY27; 3% in 2QFY26). GM declined by 300bps yoy (-40bps qoq) to ~47.6%, due to sharp inflation in commodities. EBITDA grew ~12% yoy, albeit on a favorable base, missing consensus by 2%. EBITDA margin declined by 120bps yoy to ~18.6% (-40bps qoq), on GM pressure, partially aided by decrease in opex costs (~80bps) and ad-spends (~120bps). Adj PAT grew 9% yoy and was 5-10% below estimates, led by higher depreciation, interest costs and lower other income.
Earnings call highlights
1) Home Care growth was led by air fresheners and liquids, with HI gaining share, electrics improving, incense sticks scaling strongly.
2) Fab sustained DD growth; Spic expanded nationally, while Rizz and Zap saw encouraging responses.
3) Personal Care was steady; soaps faced price-volume recalibration and inventory correction; premium liquids, Cinthol body wash, Muuchstac performed well. Hair colors gained share; perfumes/deodorants growth was strong.
4) Detergent growth remained strong, driven by formalization and migration to liquids; Ezee saw early seasonal traction, with further pricing expected in soaps and detergents as margins remain below normative levels.
5) 3Q inflation is expected to rise slightly qoq, with focus on absolute profit growth over margin protection.
6) Ad-spend optimization reflects lower category intensity in soaps/detergents and better reach at lower costs elsewhere; digital/influencer capabilities are being strengthened, while the new RNF campaign aims to improve HI reach.
7) Mgmt is tightening inventory discipline to improve offtake; the India CEO search prioritizes Godrej values and an entrepreneurial mindset.
8) Indonesia benefited from El Niño-led mosquito infestation, while LV and Pocket sustained double-digit UVG; Mgmt sees multiple levers to sustain growth.
9) FY27 guidance remains high-single-digit standalone UVG and DD consolidated revenue/EBITDA growth, with scope to exceed guidance in some areas.
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