Will keep investing to grow the household insecticides market – Godrej ConsumerMrunmayee Jogalekar
Update on the Indian Equity Market:
On Monday, NIFTY closed 0.1% lower at 17,355. Top gainers in NIFTY50 were COALINDIA (+3.9%), HINDALCO (+3.3%), and KOTAKBANK (+1.7%). The top losers were RELIANCE (-2.3%), ICICIBANK (-1.8%), and SBILIFE (-0.9%). The top gaining sectors were MEDIA (+1.3%), METAL (+1.3%), and IT (+0.9%) while the top sectoral losers were BANK (-0.6%), PRIVATE BANK (-0.5%), and PSU BANK (-0.4%).
Will keep investing to grow the household insecticides market – Godrej Consumer
Excerpts of an interview with Mr. Sunil Kataria, CEO- India & SAARC at Godrej Consumer Products (GODREJCP), aired on CNBC TV18 on 9th September 2021:
- Input cost inflation has not slowed down against the expectation that the inflation would come down in the July-August period. Current inflation pressures may remain for another 6 months.
- Demand is holding steady currently. Rural demand was strong even in the 1st wave of covid-19. The positive thing now is that urban demand has also seen a sharp recovery.
- Discretionary demand has come back strong. Provided the festive season does not get disrupted and continued ramp-up of vaccination, further growth should be possible.
- GODREJCP is taking calibrated price increases in some products to mitigate the higher input cost prices. Further mitigation is being done via overhead cost control. GODREJCP has taken 7%-8% price hikes so far in FY22.
- Management expects to maintain EBITDA margins in the 25%-26% band. This operating performance will be delivered without compromising on ad spends. Ad spends are an important investment in brand building.
- The core business of soaps and household insecticides had strong tailwinds in FY21 and did not suffer due to the covid-19 disruption.
- Discretionary items like hair color and hair care faced a challenge in 1HFY21 but came back strongly in 2HFY21.
- Management expects both- core and discretionary categories to perform well going forward. Mr. Kataria expects overall double-digit growth across all categories.
- GODREJCP is seeing big momentum in personal wash and hygiene so increasing capacity additions there. But capex outlay is not an issue for a cash-rich FMCG business.
- Being the market leader in household insecticides, GODREJCP will undertake continued investments in increasing product portfolio and brand building in household insecticides.
Asset Multiplier comments:
- Consumer staples, as well as discretionary companies across board, have been taking price hikes to mitigate the impact of input cost pressure. However, all managements are taking a calibrated approach as demand is still a bit fragile in some product baskets due to the economic impact of lockdowns.
- How the rural demand shapes up from here remains to be seen as the covid-19 2nd wave has impacted rural India more than the 1st
Consensus Estimate: (Source: market screener websites)
- The closing price of GODREJCP was ₹ 1,119/- as of 13-September-2021. It traded at 59x/51x/44x the consensus earnings estimate of ₹ 19.0/22.0/25.2 for FY22E/23E/24E respectively.
- The consensus price target is ₹ 1,058/- which trades at 42x the earnings estimate for FY24E of ₹ 25.2/-
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