New product launches, traction in foreign sales are key triggers for GCPL

Investor interest in Godrej Consumer Products Ltd (GCPL) has been waning over the past year amid slower revenue growth. GCPL's annual growth rate in FY16-19 moderated to around 7 per cent from 10 per cent in FY13-16. 

The stock tumbled about 14 per cent in the past year, as against a 2 per cent rise in the S&P BSE FMCG index. However, steps taken by the company — both in the domestic and international operations — are expected to help improve revenue growth over the medium term.

GCPL is launching its own incense sticks (neem-based mosquito repellent) and will enrich this portfolio over the next few months. This will boost the prospects of its household insecticides (HI) segment, which accounts for 22-23 per cent of its sales. 

The incense sticks market has grown significantly in the past few years and now accounts for 12 per cent of the household insecticides market in India. 

Analysts said GCPL's incense sticks would help to take away the market share of illegal incense sticks. Efforts to create awareness about the harmful impact of illegal incense sticks would further aid GCPL's HI growth. Analysts at IIFL expect GCPL's HI segment to grow 7 per cent in FY20 and then 10 per cent in FY21.

An expected improvement in the penetration of shampoo-based hair colour, aggressive focus on soaps, and faster growth of liquid detergents are revenue growth levers for GCPL. 

Growth in international business (46 per cent of consolidated revenues) is also likely to improve. While abating competitive intensity in HI and the launch of economy-size packs will help GCPL's Indonesia business, relaunch of Darling brand (hair extension portfolio) will augur well for its Africa business. 

Indonesia and Africa account for over 80 per cent of its operating revenue from international business.

Overall, the stock looks favourable from the medium-term investment point of view. According to analysts at IIFL Securities, after a few quarters, GCPL's measures should help in improving the growth trajectory. 

Thus, the stock provides good entry opportunity for investors with a three-year horizon. GCPL's stock currently trades at 41 times its FY20 estimated earnings; 25 per cent discount to that of Hindustan Unilever.