PremiumGodrej Consumer Products Ltd’s (GCPL's) shares rose over 20% in early trading hours on Wednesday on the National Stock Exchange, hitting a new 52-week high of Rs892 apiece. The reason for the re-rating in the GCPL stock is simple: new leadership. The company said it has appointed Sudhir Sitapati as GCPL’s managing director and chief executive officer for five years effective 18 October. Investors are visibly thrilled about Sitapati’s rich experience of more than two decades (a 22-year stint) at bigger peer Hindustan Unilever Ltd (HUL). Currently, Sitapati is the executive director and vice president for the foods and refreshment business at HUL.
Analysts from Motilal Oswal Financial Services Ltd said, “After more than a decade of being 'Neutral' on the company (downgraded to 'Neutral' in August 2010), a stand that has been vindicated particularly in the past five years, we are upgrading the stock to 'Buy'." The broker added, “If Mr Sitapati is able to strongly grow the domestic business and usher better capital allocation, the impact on GCPL’s prospects can be immense."
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Premium Premium To be sure, over the last few years, several management changes in the consumer sector have had a positive impact on the business prospects of companies. As analysts from Jefferies India Pvt. Ltd wrote in a report on 11 May, “While there are a lot of unknowns, history of CEO changes at Britannia Industries Ltd, Jubilant Foodworks Ltd, HUL, Dabur India Ltd suggest that a new leader could bring about a paradigm shift, driving significant shareholder value." The broker added, “GCPL has underperformed most peers in the past few years, which may change as the new leader brings-in a new strategy that may entail some hard decisions."
The new development marks a separation from GCPL being run as a promoter led company, to being led by a professional. Studies have shown that a separation of ownership and management helps firms in capital allocation and to attract better valuations.
GCPL has also said Nisaba Godrej, the company’s current chairperson and managing director, will continue to serve as executive chairperson. Nisaba is the daughter of Adi Godrej, chairman emeritus of GCPL. Note that excluding today’s appreciation in the stock, GCPL shares had increased by 8.6% since 9 June 2020 when the company had announced management changes last year. During the same time, the Nifty FMCG index has risen nearly 16%.
Meanwhile, GCPL’s March quarter results announced on Tuesday have broadly met expectations. Consolidated revenues increased by 27% year-on-year, helped by a favourable base of last year’s quarter.
As things stand, Wednesday's jump in the GCPL shares have naturally boosted valuations. Currently, the stock trades at 47 times estimated earnings for FY22, based on data from Bloomberg.
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