Godrej Consumer's Shares Jump Most On Record As Brokerages Cheer Appointment of Sudhir Sitapati As New CEO
Godrej Consumer Products appointed Sudhir Sitapati as managing director and chief executive officer.
Shares of Godrej Consumer Products Ltd. jumped the most on record as analysts suggested a rerating for the stock citing appointment of a new managing director and chief executive officer who’s expected to implement strategic changes.
The board of the maker of Good Knight and Hit insect repellants appointed Sudhir Sitapati as managing director and chief executive officer for a period of five years with effect from Oct. 18, 2021, subject to the approval of shareholders in the ensuing annual general meeting, according to an exchange filing.
Accordingly, with effect from that date, Nisaba Godrej, who is currently the chairperson and managing director, will serve as executive chairperson, the filing said.
Separately, Godrej Consumer reported a 59% year-on-year jump in profit at Rs 366 crore in the quarter ended March. Its consolidated sales grew 27%, while earnings before interest, tax, depreciation and amortisation rose 21%.
Q4 Results Highlights (QoQ)
Consolidated net profit fell 27% to Rs 365.84 crore.
Net sales fell from Rs 3,025.29 crore to Rs 2,705.69 crore.
Total expenses rose to Rs 2,435.11 crore from Rs 2,259.12 crore.
Segment Highlights (YoY)
Household insecticides grew 34% in India; 28% globally.
Growth momentum continues in hygiene (including soaps) at 38%.
Sales from international business grew 18%, with 22% growth in Ebitda.
The company said it’s “better prepared to navigate any supply chain disruptions”, having implemented learnings from the first coronavirus wave. While localised lockdowns could impact frontline servicing and replenishment of outlets, the ongoing second Covid-19 wave could be a tailwind for the hygiene category and headwind for certain discretionary categories, it said in a separate filing.
Shares of Godrej Consumer jumped as much as 24.8% during the day to trade at Rs 894 apiece. The stock ended Wednesday’s session 21.48% higher. Of the 37 analysts tracking the company, 27 have a ‘buy’ rating, while 10 suggest a ‘hold’, according to Bloomberg data. The average of the 12-month consensus price targets implies a downside of 0.3%.
Here’s what analysts made of Godrej Consumer's Q4 performance:
Motilal Oswal
Upgrades to ‘buy’ with a target price of Rs 870 apiece.
Sudhir Sitapati’s appointment as MD and CEO is a potentially transformative event in the fortunes of the company.
His appointment as MD and CEO for five years, as well as his relative young age (mid-40s), gives him adequate time to formulate and implement strategic changes.
The underpenetrated household insecticides and hair color categories could greatly benefit from Sitapati’s past experience, where GCPL has struggled to boost penetration.
Valuations, which are deservedly at a discount of 10% to large-cap staples peers given the weak growth and lower return on capital employed, will change with the potentially transformative changes that Sitapati can usher in.
There are early signs of the laggard African business turning around in recent quarters under a new divisional CEO who took over in FY21.
The Indonesia business currently faces macro headwinds, but is a better run business both on margin and return on capital employed compared to the rest of the international business.
Jefferies
Maintains ‘buy’ rating, raises target price to Rs 1,000 from Rs 840 apiece.
While new CEO joining is still six months away, this announcement is a trigger for a re-rating.
History of CEO changes at Britannia Industries Ltd., Jubilant Foodworks Ltd., Hindustan Unilever Ltd., Dabur Ltd. suggest that a new leader could bring about a paradigm shift, driving significant shareholder value.
GCPL has underperformed most of its peers in past few years, which may change as the new leader brings-in a new strategy that may entail some hard decisions.
In household insecticides, Godrej Consumer has been late in reacting to the rising threat from the incense sticks which allowed the unorganised players to garner near-double digit share.
GCPL’s incense stick launch met with limited success and there is a need probably for an out-of-box approach to deal with the issue as the patchy performance of household insecticides has been one of the key investor concerns.
ICICI Securities
Upgrades to ‘buy’ rating from ‘add’, hikes target price to Rs 850 from Rs 800 apiece.
Appointment of Sudhir Sitapati as MD and CEO is a likely a re-rating event.
Q4FY21 performance was impressive with 24% domestic revenue growth in Jan-Feb’21, continued profitable recovery in Africa, while Indonesia stabilised.
India growth was driven by soaps (gaining market shares in an inflationary environment) and household insecticides (broad based across formats), while hair colour continued recovery (with category uptick).
Africa sales grew 36% (constant currency terms) and margins expanded (to 11%; +710 basis points) driven by scale and cost saving initiatives.
Indonesia grew just 4% (constant currency terms) due to weak macros and price competition in the wipes category.
Strong growth momentum is likely to continue driven by acceleration in India household insecticides, improvement in Indonesia and profitable turnaround in Africa under the new leadership.