Godrej Consumer - Outperformance Triggers Yet To Play Out: ICICI Securities

ICICI Securities Report

Godrej Consumer Products Ltd.'s stock price was broadly flat during July 2017 to May 11, 2021 (date of appointment of Mr. Sudhir Sitapati as the Managing Director and Chief Executive Officer) for a host of fundamental reasons (underwhelming performance in Africa, consensus' worries about household insecticides category growth, relatively (perceived) lower success rates in innovation, deceleration in Indonesia revenue growth, etc.)

With the stock rallying 20% on the day following the appointment news, investors ask us whether valuations already capture the upsides. We believe the outperformance triggers are yet to play out in its entirety. While upside potential for the near-term earnings (read FY22) may be limited, we expect some of the potential positive developments to be rewarded generously (and rightly so, as being Discounted Cash Flow-accretive) by the street (re-rating).

At 40 P/E FY23e, we find GCPL's valuations (relatively) palatable vs sector median (amongst large caps) at 46X and Tata Consumer Products Ltd. at 51X (a comparator with sizeable international business)

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