Godrej Consumer Products Ltd Innovates for Sustainable Growth in Challenging times.

We continue to have a healthy balance sheet and are also net cash positive. We are on track in our journey to reduce inventory and wasted cost and are deploying this to drive profitable and sustainable volume growth across our portfolio through category development. We remain committed to our purpose of bringing the goodness of health and beauty to consumers in emerging markets. – Sudhir Sitapati, Managing Director and CEO, GCPL

Stock Data:

Ticker	NSE: GODREJCP & BSE:  532424
Exchange	NSE & BSE
Industry	FMCG

Price Performance:

Last 5 Days	+1.33%
YTD	+10.80%
Last 12 Months	+30.07%

Company Description:

Godrej Consumer Products Ltd (GCPL) is a subsidiary of the Godrej Group, a company with a history of 124 years. GCPL was created in April 2001 through the division of the consumer products division of the erstwhile Godrej Soaps Ltd. The company has been operating in the personal care segment for over a century, but its current form was established in 2001. GCPL has a strong presence in the FMCG industry and is focused on three core categories – personal care, home care, and hair care – with a presence in three geographies – Asia, Africa, and Latin America. The company is known for its extensive range of products, and it has a well-established reputation for quality and innovation. GCPL has grown rapidly over the years, and its strong market position has enabled it to become a leading player in the FMCG industry.

Critical Success Factors:

• Godrej Consumer Products Limited (GCPL) has implemented a highly innovative strategy for its home insecticides (HI) business, which has yielded positive results. Despite a drop in sales growth in the latter half of 2016-22, GCPL has reported an improved performance over the past couple of quarters. The company’s ‘Goodnight mini liquid vaporizer’ and ‘Mini hit spray’ innovations are priced closer to illegal incense sticks, encouraging uptrading from burners and coils to vaporizers and sprays, and potentially leading to continued growth momentum. GCPL’s micro-market strategy and high ad spends have resulted in increased competitiveness and market share gains.
• GCPL has also seen a strong gross margin recovery in its India business, with domestic GM expanding to 54% after seeing 11 quarters of margin contraction. GCPL has taken several measures to improve its international business, such as simplifying its distributor model in Indonesia and focusing on the FMCG business in Africa. The company has a renewed philosophy of driving growth through a ‘less is more’ approach to innovation, increased consumer-centricity, and rigorous stage-gate processes, among others.
• GCPL’s innovations have resulted in several strengths for the company. Firstly, the company has been able to achieve uptrading in its HI category by pricing its mini liquid vaporizer and mini hit spray products at a cost similar to illegal incense sticks. This has resulted in continued growth momentum and improved performance over the past few quarters. Secondly, the company’s micro-market strategy has resulted in consistently gaining market share over the past decade, with its Godrej No. 1 brand becoming the second-largest brand by volume in Q3FY23. Thirdly, the company has simplified its distributor model in Indonesia and pivoted towards the FMCG business in Africa, resulting in gradual recovery in these regions. Finally, GCPL has adopted a renewed philosophy of driving growth through a ‘less is more’ approach to innovation, increased consumer-centricity, and rigorous stage-gate processes, which has resulted in sustained value creation.
• GCPL’s focus on innovation has been a major strength for the company. The company’s RIDE (R&D + Innovation + Design + Expertise) structure has helped it to drive innovation by adopting key principles such as a ‘less is more’ approach, even more consumer-centric, 100% objectivity, and becoming truly global. Additionally, GCPL has been able to rationalize its SKUs by 25% over the past six months in India and by one-third in GUAM, leading to reduced working capital and simplification efforts. Overall, GCPL’s innovation-led turnaround strategy has been a key strength for the company, resulting in sustained value creation and growth.

Key Challenges:

• GCPL faces several key concerns that could impact its future performance. One of the biggest risks is competition. The company operates in a highly competitive market and faces aggressive pricing by competitors, entry of new players, and the emergence of e-commerce and digital-first brands. This makes it challenging for GCPL to maintain its market share and pricing strategy. Additionally, the grocery retail market is likely to face disruption in the medium term due to the growth of hyper-local formats of Reliance Retail and new e-commerce hypermarkets.
• Another significant risk for GCPL is currency fluctuations. The company generates over 40% of its revenue from foreign operations and has a presence in five continents. Any fluctuations in currency rates, especially in key international markets like Africa and Indonesia, can significantly impact the company’s earnings performance.
• Commodity risk is another concern for GCPL. Volatility in commodity prices, such as palm oil and crude oil derivatives, can significantly impact the company’s revenue and margins. The company’s business slowdown risk is also a factor that cannot be ignored. GCPL saw muted sales, EBITDA, and PAT growth in FY18-20 due to several factors, including geopolitical issues, heightened competition, and volatility in raw material prices. Any resurgence of a slow-growth scenario could hurt its growth in the future.
• Finally, there is a risk of a structural fall in demand for household insecticides (HI) in India, which could impact GCPL’s performance. The company is heavily dependent on HI products to drive its sales, and a decline in demand could adversely affect its revenue and margins. Additionally, the Godrej group, to which GCPL belongs, is reportedly undergoing a family split. This could impact the valuation of the group’s companies, including GCPL, depending on the outcome and timing of the split.