Godrej Consumer Shares Jump As Analysts See New CEO's Focus On Core Business Aiding Growth
Shares of Godrej Consumer Products Ltd. gained the most in more than seven months as analysts expects the company's new chief executive's focus on core portfolio, innovation and quality to help achieve a double-digit volume growth target.
The stock rose as much as 6.37% on Tuesday, the biggest intraday gain since May 12, according to Bloomberg data. It closed 5.12% higher compared with a nearly 1% advance in the Nifty 50.
Sudhir Sitapati took over as the managing director and chief executive officer at the company starting Oct. 18.
According to Jefferies, the "journey from good to great" has begun for Godrej Consumer. "The company does not need new products to be successful. Focus on core products could be very beneficial," the research house said in a note.
Motilal Oswal sees sustained market share gains in soaps business in India, and progress in dry hair business in Africa as areas of encouragement.
Of the 36 analysts tracking the company, 27 maintained a 'buy', seven recommend a 'hold' and two suggest a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 16.5%.
The stock's trading volume was three times the 30-day average volume for this time of the day.
What brokerages have to say about Godrej Consumer's growth prospects...
Maintains 'buy' with a target price at Rs 1,190, an implied return of 33.52%.
New CEO Sudhir Sitapati's assessment on the company's strengths and weaknesses was balanced.
The company's plans to invest in core portfolio will lead to double-digit volume growth and Ebitda margin gain of 150 basis points.
Its focus on strengths such as culture of innovation, quality, frugal cost mindset, distribution and urban-centric reach augurs well for the growth prospects.
The portfolio remains good with four countries contributing 80% to overall revenue, and four products accounting for 40% of the revenue.
Plenty of non-linear growth potential seen in key products like Good Knight liquid, Good Knight Multi Insect spray, Aer pocket and Ilicit hair colour.
Forecast 12% annual growth in revenue over FY21-24E to arrive at the target price, in base case scenario.
Key challenges: Cost inflation, tough environment in India, and competition.
Maintains 'buy' but cuts target price to Rs 1,150 from Rs 1,180, still an implied upside of 21.71%.
Retains the company as the preferred pick in the sector.
Double-digit volume growth can be achieved through:
(i) Penetration gains in 50% of the portfolio.
(ii) Moderate market share gains.
(iii) Consumption-led market growth.
(iv) Disruptive innovation.
New CEO's emphasis on core strengths of innovation and quality augurs well for the company.
Key weaknesses include relative inability to drive category development, high complexity, inadequate global collaborations and relatively lesser investments in advertisements compared to peers.
Healthy domestic volume growth over the last 18 months and turnaround in businesses in Africa and Latin America bodes well.
The management's target of double-digit growth is achievable.
Upgrades to 'accumulate' from 'reduce' with a target price at Rs 995, an implied upside of 11.64%.
Marginal increase in FY22 revenue estimates in line with company's double-digit volume growth target.
Reduces margin estimates to account for unprecedented inflation pressure.
The company's focus on core strengths bodes well for growth prospects.
It needs to work on inability to drive category development, complexity of the offerings, and frugal mindset.
Expects the company to grow faster in soaps category and gain share from unorganised and smaller players.
Expects hair colour category to perform better in the near term. Brand investment will be crucial for long-term sustainable growth.
Expects growth to remain muted in the near term due to cost inflation and macroeconomic issues in the Indonesia market, besides the Covid-19-related slowdown.