GCPL’s first quarter growth is good, but its investors need more

Godrej Consumer Products Ltd (GCPL) update for the June quarter (T1FY22) has a few bright spots. The company said it expects the Indian operations to generate sales growth in the coming years, driven by strong volume growth and calibrated price increases. Note that GCPL derives about 55% of its income from India.

“We expect our two-year compound annual growth rate (CAGR) to be in the double digits,” GCPL said. This indicates an improving trend compared to the March quarter (Q4FY21).

Commenting on the trading performance of T4FY21 in India, analysts at JM Financial Institutional Securities Ltd said, “The two-year CAGR is around 5%, which is quite similar to the trend of the past two quarters. “

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Falling behind

Additionally, GCPL experienced strong double-digit sales growth in its home and personal care categories in Q1FY22. In the home care segment, the household insecticides segment performed well, while the growth in personal care was led by the laundry and hygiene product categories.

The company expects constant currency sales growth in Indonesia to remain stable. Note that Indonesia had experienced a growth of 4% in constant currencies in Q4FY21. Additionally, GCPL added: “At Godrej in Africa, the United States and the Middle East, growth momentum continued in most of our major countries of operations. We expect constant currency sales growth to the top of the fifties (> 50%). “This is helped by a favorable base in Q1FY20.

Overall, GCPL expects consolidated sales growth for the June quarter on a two-year CAGR basis to be double-digit.

The action GCPL rose by nearly 4% on the National Stock Exchange on Monday. Admittedly, the valuations are relatively lower vis-à-vis some of its peers and this offers comfort to say the least.

GCPL stock is currently trading at nearly 43 times estimated earnings for fiscal 2023, based on data from Bloomberg.

In a report released on July 4, analysts at ICICI Securities Ltd said, “We model revenue / EBITDA / after-tax profit CAGR of 10% / 12% / 13% for fiscal years 21-23E. “The main downside risks are the structural deceleration of household insecticides in India and strong input cost pressure,” said ICICI Securities. In general, a constant improvement in GCPL activities in Africa can act as a positive trigger for the stock.

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