Home / Markets / Mark To Market /  GCPL’s growth in Q1 is good, but its investors need more

Godrej Consumer Products Ltd’s (GCPL’s) update for the June quarter (Q1FY22) has some bright spots. The company said it expects the India business to deliver sales growth in the high teens, driven by strong volume growth and calibrated price increases. Note that GCPL derives around 55% of its revenues from India.

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

Commenting on the Q4FY21 India business performance, analysts from JM Financial Institutional Securities Ltd had said, “Two-year CAGR works out to around 5%, which is quite similar to the past two quarters’ trend."

Falling behind
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Falling behind

Further, GCPL has witnessed strong double-digit sales growth in its home care and personal care categories in Q1FY22. Within the home care segment, the household insecticides segment did well, whereas growth in personal care was led by personal wash and hygiene categories.

The firm expects constant currency sales growth in Indonesia to remain flat. Note that Indonesia had seen 4% growth in constant currency terms in Q4FY21. Further, GCPL added, “In Godrej Africa, USA and Middle East, growth momentum continued across most of our key countries of operations. We expect to deliver constant currency sales growth upwards of the fifties (>50%)." This is helped by a favourable base in Q1FY20.

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

The GCPL stock rose nearly 4% on the National Stock Exchange on Monday. To be sure, valuations are relatively lower vis-à-vis some of its peers and that offers comfort to say the least.

The GCPL stock currently trades at nearly 43 times estimated earnings for financial year 2023, based on Bloomberg data.

In a report on 4 July, ICICI Securities Ltd analysts said, “We model revenue/Ebitda/profit after tax CAGR of 10%/12%/13% over FY21-23E." Ebitda is earnings before interest, tax, depreciation and amortization. “Key downside risks are structural deceleration in India household insecticides and steep input cost pressure," said ICICI Securities. In general, a consistent improvement in GCPL’s Africa business may act as a positive trigger for the stock.

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