Godrej Consumer Products shares gain as East Africa business reorganization seem to aid cluster profitability

Godrej Consumer Products share price gained over a percent in early trade on Tuesday after the company announced the divestment of its entire stake in African subsidiaries.

Godrej Consumer Products along with one of its wholly owned subsidiaries has entered into an agreement for divesting its entire stake in wholly owned subsidiary viz. Godrej East Africa Holdings Limited, Mauritius to HKG Africa Weave Ltd for $3.5 million. 

Upon the completion of the deal, Godrej East Africa Holdings along with its step down subsidiaries viz. DGH Tanzania Ltd, Mauritius, Charm Industries Ltd, Kenya and Sigma Hair Industries Ltd, Tanzania will cease to be subsidiaries of the Company, Godrej Consumer Products said in an exchange filing.

The deal shall be subject to various regulatory approvals in the respective countries, it added.

Also Read: Kotak Mahindra Bank’s reshuffle likely to arrest top management attrition, say analysts; shares gain

“This will lead to a negative revenue impact of ₹700 million for Q4FY24. With this, GCPL has reorganized operations in Uganda, Angola, and Tanzania; the company now has to effect reorganization of its Kenya business,” Emkay Global Financial Services said.

With reorganization of the East cluster, Godrej Africa, USA, Middle East (GAUM) cluster revenue contribution would ease, from ~26% in FY23 to <20% in FY25, while absolute profit would see expansion, aided by the royalty plan.

Emkay Global Financial Services believes that Godrej Consumer Products’ management is now dealing with two key concerns in consolidated operations: the new molecule-based HI offerings (across India, Indonesia), and improved show in the GAUM cluster. 

With a view to enhance growth potential and profitability in the GAUM cluster, Godrej Consumer has announced divestment of its Tanzania operations (shift to franchisee model). 

“With its Kenya business yet to be reorganized, Godrej Consumer will shift its overall revenue of ₹5 billion to the franchisee model, which will drive around ₹500 million in annual profit. Management sees cluster margin expansion to over 15% in the next couple of years (in line with our estimate) vs. high single-digit margin in the last 5 years,” Emkay Global Financial Services noted.

Under the new leadership, execution has seen a facelift. The new management is not only simplifying businesses, but is focused on category disruptions, which aid share gains, the brokerage said.

Also Read: Whirlpool of India share price falls 5% on promotor stake sale

The stock reacted to positive developments like expected efficacious launches in HI and profitable thrust in GAUM cluster. 

The brokerage retained an ‘Add’ call on Godrej Consumer Products with a target price of ₹1,325 per share, as the stock priced in positives on better execution, backed by the management addressing business basics and simplifying operations.

Godrej Consumer share price has gained nearly 10% in the last one month, while the stock is up more than 24% in three months.

At 10:10 am, Godrej Consumer shares were trading 0.66% higher at ₹1,238.00 apiece on the BSE.

Catch Stock Market Live Updates here

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.