Tuesday, November 30, 2021
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Will Indonesia biz recovery give Godrej Consumer shares a lift?

NEW DELHI: Shares of (GCPL) have delivered flattish returns in the last one month, even though its year-to-date return stands at a healthy 42 per cent.

Analysts said the company’s Indonesian business, which accounts for 16 per cent of sales and 20 per cent of Ebitda, is lagging behind India and other geographies in terms of growth since FY21, thanks to Covid-related headwinds.

While the company management is targeting double-digit revenue growth for Indonesia, something it delivered in FY19 and FY20, analysts seem to be in no hurry in upgrading the stock’s target prices, which so far suggest limited upside, if at all, ahead.

On Tuesday, the scrip climbed 4 per cent to hit a high of Rs 1,083.05.This was higher than a Rs 1,030 target suggested by Emkay Global and Rs 1,050 by Kotak Institutional Equities.

Price targets set by JM Financial (Rs 1,095), ICICI Securities (Rs 1,100) and Credit Suisse (Rs 1,150) also suggest meagre return potential for the stock.

Emkay said its estimates remain unchanged as it has already factored in a recovery in the Indonesia business. At 49 times FY23 EPS, it finds the stock valued fairly.

ICICI Securities said early signs of turnaround in Indonesia business inspire confidence in expectations of a sustainable turnaround. That said, it has not changed its earnings estimates for now and is expecting GCPL to log revenue growth of 11 per cent, Ebitda expansion of 15 per cent and PAT growth of 14 per cent compounded annually over FY21-23E.

The brokerage has maintained its ‘add’ call and kept its price target unchanged for the stock.

“Covid-19 impact on businesses and companies in the region (Indonesia) appears far more pronounced than what it appears to be closer home in India,” JM Financial said.

“The management is actively putting in place building blocks for future growth. Our sense is that new product development (NPD) continues to remain a very important piece for Indonesia as far as FMCG is concerned, as it is for any other geography for that matter. GCPL’s Indonesia revenue was held in reasonably good stead in recent times due to the impetus provided by the newly-launched hygiene products that now contribute 10 per cent to Indonesian revenues,” JM Financial said.

Analysts said there is significant pressure across FMCG categories in Indonesia and the growth was in single digits even before the pandemic. Unemployment and reduced tourist inflows also have had an impact on income levels, leading to some bit of downtrading in consumption items.

All these factors make businesses take a cautious view on price hikes, despite the commodity cost pressures. GCPL Indonesia expects some pressure on margin in the near term, but is confident of

maintaining margin profile in the medium term on likely calibrated price increases in select categories, cost savings and currency tailwinds.

Among product segments, hygiene now accounts for 10 per cent of GCPL Indonesia’s sales, which is fairly impressive given GCPL Indonesia’s recent entry into the segment, said Motilal Oswal Securities.

The management is now leveraging its Saniter brand and moving into personal care categories, such as soaps and personal wash with powder-to-liquid and liquid formats, the company told analysts in an interaction this week.

But “the recovery in the FMCG sector in Indonesia has not been quick. In some of the segments, there has been down-trading to smaller packs or less popular packs. Besides, high category penetration and limited opportunity for a price increase is delaying the headline recovery,” ICICI Securities said.

Edelweiss has rolled over its estimates to March 2023 and increased its price target for the stock to Rs 1,200 from Rs 1,135 earlier.

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