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Global operations key trigger for Godrej Consumer

By Ram Prasad Sahu
April 14, 2021 09:30 IST
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While domestic market growth is important, the sales trajectory in the international markets, which account for 45 per cent of the revenues, will be a key rerating trigger, say analysts.

Ram Prasad Sahu reports.

The Godrej Consumer stock was up 4.3 per cent on Friday, leading to expectations of steady growth in the Indian market and improvement in the operating performance of its African unit.

 

In the Indian market, which accounts for over half its revenues, the company expects to maintain double-digit growth on the back of strong demand in rural markets and recovery in urban areas.

The soaps category, which reported 15 per cent growth in the December quarter, is expected to rack up similar rates in the March quarter on a weak base, increased consumption, and hygiene awareness.

This is aiding sales in the handwash segment. In addition to higher demand, market share gains from smaller players on the back of a differential, region-based pricing strategy should help the category after higher growth as compared to pre-Covid months, according to analysts at Sharekhan.

The Street, however, will keep an eye out for impacts on margins due to increase in the cost of raw material such as palm oil and packaging material.

In its largest domestic category of household insecticides, the company is looking at higher penetration in rural markets and product launches with a high premium.

While the hair colour segment was affected in the first half of the financial year due to lower discretionary spends and out of home consumption, it has recovered in the December quarter.

While domestic market growth is important, the sales trajectory in the international markets, which account for 45 per cent of the revenues, will be a key rerating trigger, say analysts.

The company is looking at sustainable double-digit growth in African, American, and West Asian markets by getting the distribution and execution right.

It is also looking at improving its margins to 17-18 per cent in the medium term.

The margins, which had peaked in FY17 at 16.6 per cent in Africa, have dropped to around 10 per cent in FY20.

In addition to recovery in the African market, what should support the stock are valuations, which, at 38 times its FY22 earnings estimates, are at a discount to the five-year average of 42 times, according to JM Financial Research.

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Ram Prasad Sahu
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