Buy Godrej Consumer Products Ltd for the Target Rs 1,350 by Emkay Global Financial Services Ltd
GCPL’s 1QFY27 results were largely in line with expectations. Revenue/EBITDA grew 18/15% yoy and were 1-2% above consensus’ estimate while PAT grew 12% (a 3% miss). India volume growth decelerated qoq to 7%, dragged down by weak performance in HI, though still healthy in our view. Management expects volume growth to gradually improve to double-digits by year-end. In the international segment, both Indonesia and GAUM continued to exceed growth expectations. Consolidated gross margin (GM) contracted by 260bps yoy (down by 400bps qoq) due to higher input costs, while EBITDA margin declined by 50bps yoy. While RM volatility is likely to persist, the impact on margins should be partially offset by pricing actions. We tweak our FY27-29 estimates and expect sales/earnings CAGR of 12%/16%, which is higher than that of most companies in our coverage. We maintain BUY on GCPL with unchanged TP of Rs1,350 (48x Jun-28E EPS), as we expect a better performance in both India and international (led by Indonesia) businesses.
1QFY27 result summary
Revenue grew ~18% yoy on a 7% base (2% above consensus’ estimate). Consol volume growth was healthy at 9% (6% in 4QFY26; 8% in 1QFY26). GM declined by 260bps yoy (down by 400bps qoq) to ~48.1%, due to sharp inflation in commodities. EBITDA grew ~15% yoy, albeit on a favorable base – in line with consensus’ estimate and 4% below our estimate. EBITDA margin declined by 50bps yoy to ~19% (down by 260bps qoq), on gross margin pressure, partially aided by decrease in staff costs (~110bps), ad-spends (~40bps), and operating costs (~80bps). Adj PAT grew 10% yoy and was 3-7% below our/consensus’ estimates, led by higher depreciation costs and lower other income.
Earnings call KTAs
1) Management expects ~8% India volume growth in FY27, with ~100bps quarterly improvement, and targets double-digit growth.
2) Soaps returned to volume growth, with margin back to normal levels.
3) GCPL took ~5% price hikes amid ~9-10% cost inflation, including ~6% war-linked inflation, and targets 22-26% India EBITDA margin.
4) HI stayed weak, with June seeing high double-digit decline, but GCPL gained share for the first time in almost a decade, led by incense sticks; it aims to recover the 15-20ppt share lost over past decade.
5) Speedboats should exceed the 20% FY27 salience target of a ~100-150bps rise per quarter.
6) GAUM growth is now 75% FMCG-led, with air fresheners reaching double-digit share within 6M in South Africa; Mgmt expects mid-teens EBITDA margin and mid-to-high teens CC growth.
7) Indonesia delivered 10% volume growth, aided by Stella turnaround, El Niño. LPG, kerosene, and LABSA prices rose >3x yoy, while high-cost inventory will keep 2Q margin under pressure, with recovery from 3Q.
8) Media spends fell 7–8%, but reach declined only ~3%. 9) Rizz will launch in liquid dishwash a Rs25–30bn double-digit growth category.
10) Mgmt expects to manage ~50% of the inflation and exceed FY27 guidance on most metrics.
11) Muuchstac is growing 70–80%, while pet care has achieved PMF and expanded across South India.
12) Hair color remains strong, led by the Rs15 crème pack; no imminent plans to enter mass shampoo space
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
