Godrej Consumer - Lower Raw Material Cost, GAUM Turnaround To Boost Growth: Motilal Oswal

Motilal Oswal Report

Godrej Consumer Products Ltd.’s domestic businesses had demonstrated strong sales growth in the first half of the last decade, before losing steam in the second half.

Domestic and consolidated sales growth crossed double digits in the last two years and appears to do so in FY23 as well, far better than the 4.1% sales compound annual growth rate between FY16 and FY20.

The focus on profitability improvement in the African region (Godrej Consumer’s second largest sales contributor) and continued discipline in capital allocation will reduce the historical drag on the overseas businesses.

We expect the company to be the key beneficiary of the sharp reduction in raw material costs (especially palm oil) from the peak over the next few quarters.

With the new Chief Executive Officer focusing on improving growth in the high-margin, high-return on capital employed domestic business, as highlighted in our recent CEO meet note, Godrej Consumer’s medium-term earnings growth outlook is strong.

The valuation at ~34 times FY24E earnings per share is inexpensive and is at a steep discount to peers.

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