scorecardresearchLong-term Investing: Godrej Consumer Products turned ₹1 lakh to ₹75 lakh

Long-term Investing: Godrej Consumer Products turned 1 lakh to 75 lakh in 20 years

Updated: 08 Aug 2022, 02:30 PM IST

In the last 20 years, the stock has jumped from around 11 in August 2002 to currently trade around 873, rallying as much as 7,474 percent in this period.

In the last 20 years, the stock has jumped from around  <span class='webrupee'>₹</span>11 in August 2002 to currently trade around  <span class='webrupee'>₹</span>873, rallying as much as 7,474 percent in this period.

In the last 20 years, the stock has jumped from around 11 in August 2002 to currently trade around 873, rallying as much as 7,474 percent in this period.

Godrej Consumer Products has given exceptional returns to its long-term investors. In the last 20 years, the stock has jumped from around 11 in August 2002 to currently trade around 873, rallying as much as 7,474 percent in this period.

An investment of 1 lakh in the stock in August 2002 would now have grown to over 75 lakhs today thanks to its amazing 20-year return.

However, the recent past has not been very great with the stock falling 10 percent in the past year and over 8 percent in 2022 year-to-date (YTD). This has been on the back of a surge in raw material prices, a decline in consumer demand and overall weak market sentiment on inflationary concerns.

It underperformed most of its peers in the past 1 year. ITC surged 46 percent in this time while HUL added 10 percent. Nestle also rose 9 percent and Tata Consumer advanced 3 percent. However, Emami fell more than Godrej Consumer in this time, down over 20 percent.

Godrej Consumer stock price trend


In the last 20 years, the net profit of the firm has surged over 4,100 percent to 1,783.39 crore in FY22 from 42 crore in FY02. Its sales have also skyrocketed 2,251 percent to 12,276.5 crore in FY22 from 522 crore in FY02.

However, in the latest quarter (Q1FY23), the firm witnessed a subdued performance. It reported a 16.56 percent decline in its consolidated net profit at 345.12 crore in Q1FY23 on account of commodity inflation. It had posted a net profit of 413.66 crore in the April-June quarter a year ago. The revenue rose 8.08 percent to 3,094.31 crore during the quarter under review, as against 2,862.83 crore in the corresponding period last fiscal.

"Our overall EBITDA declined by 13 percent driven by unprecedented global commodity inflation, upfront marketing investments and a weak performance in our Indonesia and Latin America & SAARC businesses," GCPL Managing Director and CEO Sudhir Sitapati said.

GCPL's India revenue rose 11.36 percent to 1,849.41 crore in the April-June quarter, as against 1,660.65 crore in the corresponding quarter a year ago.

With inflationary pressures abating, the company expects a recovery in consumption and gross margins alongside continued higher marketing investments going ahead.

"We continue to have a healthy balance sheet and our net-debt-to-equity ratio continues to drop. We are on a journey to reduce inventory and wasted cost and are deploying this to drive profitable and sustainable volume growth across our portfolio through category development," said Sitapati.

Views and Valuations

While the latest earnings did not show many signs of a turnaround, brokerages continue keeping faith in the stock on the back of its spectacular past.

"GCPL’s June quarter's profitability was way lower than we anticipated as businesses remained very weak, which along with steep input-costs pressure and sustained uplift in A&P spends impacted operational profitability for the quarter in quite a significant manner," said JM Financial.

It further noted that the management had earlier alluded to costs-moderation in the second half of FY23 (H2FY23) driving margin expansion and that aspect is playing out fine (palm-oil prices since down>35 percent).

The other aspect on H2FY23 is also that the pain in Indonesia would be behind and the geo should be off to a fresh start by then. These aspects, along with sustained benefits from costs-savings, should turn margin into a tailwind in H2FY23 vs a headwind so far, explained the brokerage. More importantly, however, GCPL needs to definitely win this ‘special situation’ through a decisive uptick in business fundamentals on the plank of the category-development theme, it added. JM Financial expects the execution machinery being put in place to yield the desired results over the medium term. GCPL remains one of our favoured picks, it said.

The brokerage retained its 'buy' call on the stock with a target at 1,025, indicating an upside of around 18 percent.

Another brokerage, Sharekhan also noted that Godrej Consumer Products has delivered yet another soft quarter.

“A change in the top management and revamped strategies focus on growth levers such as an increase in penetration, cross-pollination, simplifying business in key markets and increase in distribution to drive double-digit revenue growth in the medium term. The company targets consistent improvement in OPM through premiumisation and operating efficiencies in the medium to long run. The stock is currently trading at discount valuations of 42.9x/36.7x its FY2023/24E earnings. We maintain our Buy on the stock with an unchanged price target of Rs. 959," said the brokerage.

GCPL has maintained its guidance of single-digit volume growth and double-digit revenue growth for FY23. Over the medium term, the management expects India and Africa to grow in double digits. For Africa and Indonesia, GCPL plans to increase the distribution footprints for higher growth.

In the near term, muted consumer demand for discretionary products can impact GCPL’s performance, believe analysts. However, most recommend long-term investors accumulate the stock on the dip.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 08 Aug 2022, 02:30 PM IST