Godrej Consumer Stock Gains On Bullish Growth Outlook

Shares of Godrej Consumer Products Ltd. gained as investors and analysts bet on its product innovations and a recovery in home insecticides and hair care businesses.

The maker of Good Knight and Hit insect repellants guided for a high single to low double-digit growth in the home insecticides segment. It has also raised its penetration in the hand wash category by 1.5-1.7 times in urban and rural markets, according to the firm’s analyst day highlights compiled from brokerage reports. Godrej Consumer indicated that people have turned more health conscious, and this trend is likely to continue.

The fast-moving consumer goods company also said it’s currently witnessing a “V-shaped recovery” in the hair care business. While it’s unsure whether this trend will sustain, the firm’s expecting a recovery earlier than envisaged.

Nisaba Godrej, chairperson and managing director, in an interview to BloombergQuint in August had said the company planned to launch more hygiene products and household insecticides this year, without providing any further details. She, in an another interview to BloombergQuint in November, said the company was also betting on hair colours as people are now wearing masks.

Shares of Godrej Consumer Products rose as much as 3.6% around noon on Monday to Rs 745.95 apiece — the highest since October this year. Of the 39 analysts tracking the stock, 26 have a ‘buy’ rating, 12 suggest a ‘hold’ and one recommends a ‘sell’. The average of Bloomberg consensus 12-month price targets implies an upside of 4.5%.

Here’s what analysts had to say:

Jefferies

• Maintains ‘buy’ rating with a price target of Rs 850 apiece
• Forecasts 9% annual growth in revenue over FY20-23 in base case, which will be volume-led along with flattish Ebitda margin
• Forecasts earnings to rise at 12% CAGR despite Covid-19 headwinds in H1FY21
• Portfolio innovations and recovery in household insecticides category and volume gains in skin cleansing would be favourable
• Cross-currency issues and a high level of volatility in international geographies remain a concern

Emkay

• Maintains ‘hold’ rating with a price target of Rs 700 apiece
• Household insecticides category prone to weather changes
• Faster-than-expected pickup of hair colours is a positive sign
• India business seems well placed to deliver improved volume growth momentum
• Maintains earnings forecasts due to rising input price inflations

Motilal Oswal

• Maintains ‘neutral’ rating with price target of Rs 760 apiece
• Structural top line growth outlook remains hazy in other parts of the domestic business other than soap
• No indication of any material improvement in the pace of earnings growth
• In addition to sustained weak earnings growth, RoCE of less than 20% is far lower than peers
• More efforts needed to boost growth in discretionary portfolio

Investec

• Maintains ‘hold’ rating with a price target of Rs 740 apiece
• India business should maintain healthy growth over the medium term
• Diversification will be key given seasonality in household insecticides and large presence in soaps
• Increased aggression to drive household insecticides growth

Phillip Capital

• Maintains ‘buy’ rating with a price target of Rs 860 apiece
• Remains top anti-consensus high-conviction buy
• Handwash prospects looking very promising
• Operating performance is likely to be broad-based across categories
• Household Insecticides business on a strong wicket
• Hair colours to make a strong comeback in FY22