A superb efficiency of the family pesticides (HI) portfolio of Godrej Consumer (GCPL) has allayed a key long-standing (three years) investor concern. HI had suffered a gross sales dip in three out of 10 quarters over Q4FY19–Q1FY22. However, we anticipate HI in Q2FY22 to disappoint Street in spite of a smooth base of simply 4%. In this report, we talk about the explanations for the miss and why this is perhaps momentary. We spotlight potential disruptions to be careful for HI: doubtless vaccines in opposition to main mosquito-borne illnesses like malaria and dengue. Resurgent Africa business and upswings within the hair color and hygiene segments stay key positives. A brand new MD on the helm, Mr. Sudhir Sitapati, additionally enthuses us. Maintain ‘buy’ with a TP of Rs1,200.
HI gross sales more likely to be muted in Q2FY22 in spite of smooth base. Over the previous 5 quarters, GCPL has clocked roughly 21–33% Y-o-Y progress in HI gross sales. August noticed little or no rainfall, and September recorded very excessive rainfall, neither is nice as mosquitoes don’t thrive in excessive weathers. Key questions traders will/ought to ask: i) was resurgence because of worry throughout Covid as customers needed to keep away from falling unwell? and ii) as Covid fades, is the HI phase once more going to be a laggard? Likely vaccines for malaria and dengue may disrupt HI business… We are monitoring vaccine improvement in opposition to two main mosquito-borne illnesses: malaria and dengue.
An efficient vaccine thereof can dent HI’s long-term progress. The WHO lately endorsed use of the world’s first malaria vaccine. Scientists in India have developed a dengue DNA vaccine candidate. …however long-term outlook nonetheless optimistic. Our long-term outlook for GCPL’s HI phase is optimistic because of: i) robust concentrate on backside of pyramid with high-efficacy merchandise; ii) engaged on authorized facet; iii) bettering shopper consciousness; iv) pushing premiumisation with revolutionary merchandise; v) growing market for non-mosquito pesticides; vi) Strong outlook for HI in Indonesia and Africa and vii) robust recovery put up pandemic led by improvements.
Explore: Outlook and valuation: Sitapati issue; keep ‘buy’. Mr. Sudhir Sitapati has been appointed GCPL’s MD & CEO for 5 years with impact from October 18, 2021. We have excessive hopes from him. Overall, an upswing within the well being & hygiene phase (benefiting from prospects’ sharpened concentrate on well being) alongside with recovery in discretionary consumption ought to bolster income progress. The company’s technique of launching revolutionary merchandise at disruptive worth factors is about to bolster progress. A couple of current examples are the launch within the liquid vaporiser within the HI phase, a slew of launches underneath the Protekt model, shampoo hair color, powder-based hand wash, henna-based hair color and pure neem incense sticks. Indonesia is more likely to regularly get better in H2FY22, whereas Africa continues to carry out effectively. Retain ‘buy/so’ with a TP of Rs1,200.