Shares of Godrej Consumer Products gained nearly 1% to hit a new one-year high of ₹978.6 apiece in Thursday's trade. This came after the company released its business update for Q4 FY23.
The FMCG maker said consumer demand remained "steady" through the March quarter, and the FMCG sector is expected to witness a gradual recovery in growth rates.
“The performance of our India business has exceeded expectations, especially on the volume front. We expect to deliver double-digit volume and value growth,” the company said.
"Our domestic branded business growth was very strong, registering volume and value growth in teens. This is in line with our strategy of volume driven category development. Overall, the growth was broad based and led by double-digit volume and value growth in both Home Care and Personal Care," said GCPL in its Q4 FY23 business update.
Further, the company said its Indonesia business has started to see a gradual recovery in performance with mid-single digit constant currency sales growth. The growth in ex-Hygiene is close to double digits.
“We believe building blocks in Indonesia are in place to drive steady-to-strong performance in the next fiscal year,” it added.
While the growth in Africa, the USA, and the Middle East (GAUM) witnessed a temporary pause, the company says it has seen a strong sales recovery in March.
GCPL expects to deliver double-digit growth in the January-March quarter of FY23 at a consolidated level, led by mid-single-digit volume growth. The company also reported that growth trends are continuing to improve sequentially.
"The quality of our profits should see improvement, led by gross margin recovery and continued marketing investments translating to strong double-digit EBITDA growth," it added.
“GCPL's domestic business has been performing well, with a double-digit CAGR over FY20-FY23E, after a period of stagnation in the latter half of the last decade.”
“The domestic business has become more significant, accounting for 56% of sales in FY22 and is expected to reach close to 60% of sales in the coming years. This will result in elevated margins, earnings growth, and return ratios, as margins are over 2x higher than the international business and ROCE is several times higher," said brokerage firm Motilal Oswal in its Consumer Sector Report dated March 03, 2023.
Higher palm oil prices materially affected GCPL’s earnings in the last few quarters. The prices are now down 49% from the peak, and GCPL, among staples, will be the key beneficiary of the price reduction in the next few quarters.
Even if the company uses some of the gains to strengthen its advertising, it is expected to experience a healthy earnings growth of 25–30% in the next few quarters, according to the brokerage.
With a target price of ₹1,080 apiece, the brokerage maintained its 'buy' recommendation on the stock.
After hitting a 52-week low of ₹708 apiece in June 2022, the company's shares have grown consistently to their current level of ₹967.65 apiece, representing a return of nearly 36.67%.
In addition to that, the stock currently stands as the fourth-top gainer in the Nifty FMCG index, with a return of 28.6% in the last one year.
35 analysts polled by MintGenie on an average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
