Motilal Oswal Financial Services has reiterated its BUY recommendation for Godrej Consumer Products Limited (GCPL) with a target price of Rs 1,450, representing a 15% upside from the current market price of Rs 1,262. Despite facing headwinds including palm oil inflation and urban consumption slowdown in FY25, the research house expects the consumer goods giant to deliver robust growth with a projected sales/EBITDA/adjusted PAT CAGR of 12%/13%/19% over FY25-28. The stock currently trades at 57x and 47x P/E on FY26E and FY27E estimates respectively.

Strategic Transformation Under Leadership

Under the astute leadership of Managing Director and CEO Sudhir Sitapati, GCPL has undergone a comprehensive strategic overhaul since October 2021. The company's FY25 strategy crystallized around three fundamental pillars: expanding existing categories through innovative product development across multiple price points, implementing radical simplification to streamline operations, and prioritizing sustainability alongside profitability under the "People and Planet alongside Profit" philosophy.

The management's forward-looking approach encompasses premiumization initiatives through launching premium innovations and entering new premium categories, operational efficiency improvements via enhanced manufacturing capabilities and brand investments, and rural market penetration through affordable access packs targeting price-sensitive consumers.

India Business: Navigating Turbulent Waters

The domestic operations, contributing 62% to overall revenue, encountered significant challenges in FY25. Despite management's internal expectations of high single-digit volume growth, GCPL achieved merely 5% volume growth, primarily attributed to an unexpected consumption deceleration in the second half, particularly affecting urban markets.

Raw material inflation, especially palm oil price volatility, severely impacted profitability metrics. Gross margins contracted by 330 basis points year-on-year to 54.8%, consequently leading to a 310 basis points EBITDA margin compression to 23.6%. The India business EBITDA declined 6% YoY despite revenue growth of 6% to Rs 89.1 billion.

However, strategic wins emerged amidst challenges. The introduction of renofluthrin-based products successfully countered illegal incense stick molecules, leading to market share gains. Goodknight Electrics demonstrated double-digit volume growth with 200 basis points share expansion. Notable successes included Air Care's exceptional performance with 20% YoY growth and 700 basis points market share gains, alongside Godrej Fab's rapid scaling to Rs 2.5 billion annual run rate.

International Operations: Stability Amidst Regional Volatility

Indonesia Business Performance: The Indonesian operations exhibited resilience with 5% topline growth despite major multinational competitors facing consumer backlash. Volume growth of 6% aligned with internal expectations, while management focus on controllable cost savings resulted in approximately 200 basis points EBITDA margin expansion.

Rest of World Challenges: ROW operations experienced an 8% net sales decline, primarily due to go-to-market transformation in West Africa and political instability in the South African cluster. However, the segment achieved its highest-ever EBITDA margin above 15% with approximately Rs 4 billion EBITDA, representing 380 basis points margin expansion driven by cost optimization and stable foreign exchange environment.

Park Avenue and Kamasutra Integration

The Raymond Consumer Care acquisition, completed in May 2023, faced initial integration challenges during its first full operational year. While management initially targeted 20-25% sales growth, actual achievement of approximately 10% reflected structural market complexities and the transition toward a brand-driven, premium approach.

Strategic portfolio rationalization reduced the revenue base by 20% from Rs 6.22 billion to Rs 5 billion, accompanied by threefold advertising expenditure increase from Rs 350 million to Rs 1 billion. This transformation strategy yielded positive results, with segment EBITDA doubling from Rs 500 million to Rs 1 billion, driven by improved product mix, enhanced cost control, and marketing leverage.

Operational Excellence Through Simplification

GCPL's "Radical Simplification" initiative focuses on four key optimization levers: SKU rationalization, personnel optimization, operational streamlining, and process simplification. In Indonesia, SKU reduction exceeded 23% since 2022, significantly enhancing supply chain efficiency and reducing inventory levels from 42 days to 27 days by 2025.

The GAUM region achieved even more dramatic improvements with over 56% SKU reduction since 2022, aligning inventory with actual demand patterns and improving forecasting accuracy. These initiatives collectively contributed to enhanced operational efficiency and cost optimization across all geographies.

Financial Projections and Valuation Metrics

Medium-term Financial Targets:

India business: High single-digit volume growth with mid-to-high 20s EBITDA margins

Indonesia: High single-digit volume growth with mid-20s EBITDA margins

ROW: Mid-single-digit volume growth with >15% EBITDA margins

Investment Thesis and Risk Assessment

Motilal Oswal's bullish stance reflects confidence in GCPL's strategic transformation and multiple growth catalysts. The research house expects growth recovery in FY26 supported by macroeconomic tailwinds and stabilization of international operations, particularly Indonesia.

Key Investment Positives:

Strengthened core portfolio with new segment additions

Enhanced personal care presence through RCCL acquisition

Superior volume delivery compared to peer group

Robust medium-term growth prospects across all geographies

The target price of Rs 1,450 is based on 50x June 2027 estimated earnings per share, reflecting premium valuation justified by the company's strategic positioning and growth trajectory. Current trading multiples of 57.3x P/E for FY26E appear reasonable considering the anticipated earnings acceleration and market leadership across key categories.