Insect repellent in an incense stick has analysts bullish on this FMCG stock

GCPL claims it is India's only company to sell government-registered anti-mosquito agarbatti, or incense stick.
GCPL claims it is India's only company to sell government-registered anti-mosquito agarbatti, or incense stick.

Summary

  • Aggressive growth strategy, including acquisitions, market expansion, and innovation, and the successful integration and cost optimization efforts post-acquisition of Raymond's consumer care business also bode well for the GCPL stock

Shares of Godrej Consumer Products Ltd (GCPL) have risen about 9% in the last one month, and though they trade at 54 times price-to-earnings (PE) ratio based on FY25 estimates, Motilal Oswal believes it has steam left. The brokerage has reiterated its ‘buy’ rating on the stock with a target of 1,500 apiece. That’s an upside of 18% from its previous close of 1,267.45.

Under managing director and chief executive Sudhir Sitapati, who joined from Hindustan Unilever in October 2021, GCPL has embarked on an aggressive growth path. The strategy includes acquisitions, brand extensions, new channel strategies, inventory optimization, and cost reduction, as well as divesting non-core operations, such as its East Africa business to focus on more profitable ventures. A January presentation to the analysts said that “multiple actions" are underway in Africa, with the exercise expected to be completed by June.

GCPL has ventured into the anti-mosquito incense sticks market, a sector dominated by unorganized players. It claims it is India's only company to sell government-registered anti-mosquito agarbatti, or incense stick. It is powered by a Made-in-India molecule known as ‘Renofluthrin’ (RNF), and boasts of twice the efficacy of prevalent molecules. The company is set to enjoy nine years of patent exclusivity on RNF, GCPL claims, and also aims to be aggressive in the market for liquid vaporizers, aerosols, and coils.

It has also launched a new liquid detergent called ‘Fab’ in select states, in addition to Ezee and Genteel, its popular brands in the high-growth market. Fab is competitively priced at 99 per litre to appeal to the mass market.

In less than a year, the company has also made good of its acquisition of Raymond’s consumer care business. The 2,825 crore deal, done in April 2023, had fetched the company marquee brands like Park Avenue (soaps, deodorants and other products for men’s grooming), KS (deodorants) and KamaSutra (condoms and sexual wellness).

In its 31 January call with analysts, the company revealed the integration of Raymond’s consumer business was complete and cost synergies had started to flow. “We are now operating with approximately 30% of the erstwhile overheads and remain confident of achieving the business case," Sitapati had told the audience. 

According to Motilal, the company has successfully reduced Raymond’s channel inventory to 15-20 days through rationalization of stock keeping units (SKUs), sharply lower than 90 days channel inventory that existed before the change in ownership of the brands.

The brokerage is factoring in a low double-digit to mid-teens revenue growth over the medium term at GCPL, after accounting for some adverse impact on the company’s topline due to inventory rationalization in the current financial year (April-March).

GCPL is working on improving fundamentals in its overseas businesses, too. The company has revamped its distribution in Indonesia and Nigeria, while working to trim its channel inventory. In Indonesia, the company has relaunched an access pack of the hero brand HIT aerosol. In Nigeria, the business went through some upheaval with the government there devaluing the currency and allowing it to float freely. The company raised product prices in Nigeria to protect its profitability and it now expects to grow its market share in the long term.

The company is looking to focus on relevant business areas in the GAUM cluster (Godrej Africa, US, Middle East). Motilal believes the company’s initiatives and focus on high-growth, high-margin business in GAUM will improve profitability.

“The implementation of disruptive innovations, the introduction of access packs, expansion into new growth categories, and increased advertising expenditure are anticipated to contribute to a consistently healthy growth trajectory," the brokerage added.

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