Godrej Consumer Products’ India biz to drive growth
1 min read . Updated: 06 Mar 2023, 12:16 PM IST
PremiumEven if GCPL spends some of the gains to shore up advertising, the company could see a healthy earnings growth of 25-30% in the next few quarters, analysts said
Godrej Consumer Products Ltd (GCPL) is a beneficiary of the sharp fall in prices of palm oil, a key raw material for the fast-moving consumer goods (FMCG) company. This would aid in margin growth. Analysts at Motilal Oswal Financial Services note that even if GCPL spends some of the gains to shore up advertising, the company could see a healthy earnings growth of 25-30% in the next few quarters.
In the December quarter, consolidated Ebitda (earnings before interest, tax, depreciation and amortization) margin improved to 21% after stagnating at roughly 17% in the previous three quarters.
Moreover, the share of GCPL’s India business has increased from 52% in FY17 to nearly 57% in FY22. This augurs well as the vertical is a high margin one. GCPL India’s operating Ebitda margin in the December quarter stood at 27%. In comparison, the metric in the GAUM (Godrej Africa, USA, and Middle East) and Indonesia segment was 13% and 20%, respectively.
Also, the return on capital employed in GCPL’s India business is comparatively higher, point out Motilal Oswal analysts. “If operations in Africa and Indonesia were to even remain at current levels, an improvement in the India business could improve the company’s overall margins, return ratios, and net working capital," they added.
The overseas businesses are being impacted by macro headwinds such as currency depreciation thus denting margins. The African business was under pressure but the company expects margin improvement year-on-year and sequentially from the March quarter.
Further, a meaningful turnaround in the Indonesia business is crucial to aid sentiments of investors in the stock. The segment’s revenue has declined on a year-on-year basis continuously for the past six quarters.
As things stand, shares of GCPL have recovered by nearly 38% from their 52-week low of ₹660.05 apiece seen in March.