About Company:

Godrej Consumer Products Limited (GCPL) is part of the 120 year-old Godrej group. It manufactures and markets soaps, air fresheners, hair colours, liquid detergents, incense sticks, mosquito repellents etc. It is associated with prominent brands like Hit, Godrej No.1, Cinthol, BBlunt, Aer, Good Knight among others.

GCPL generates revenues majorly through 3 segments:

  1. Hair Care
  2. Personal Care
  3. Home Care

Hair Care:

Hair Care is a big revenue segment for GCPL as it derives 32% of its total revenue from Hair care. In India, hair care market opportunity is estimated to be around Rs.22,500 Cr. Hair Color is a major sub-segment in Hair Care and GCPL has more than 20% market share in India in Hair Colors. Hair Care has the highest margin among all segments and about 80% of the revenue comes from international business. GCPL is planning to position BBLUNT stable as mass premium and the company expects to generate revenues from this business of Rs 100 Cr in the next couple of years.

Personal Care:

Personal Care constitutes 27% of the total revenue for GCPL. Soap market is India is extremely huge but also extremely competitive. GCPL has made “Godrej No.1” a Rs.1000 Cr+ brand and “Cinthol” a Rs.500-1000 Cr. brand already. Godrej entered the face wash market in 2015 as it is growing much faster (30% CAGR) than soap segment. Company has also entered men’s grooming segment which is estimated at Rs.3500 Cr. in India.

Home Care:

This is the biggest segment in terms of revenue for GCPL. Household Insecticides is a Rs.5400 Cr. market in India and GCP commands 50%+ market share in it. Almost 85% of sales is from mosquito repellents and GCPL has grown at 2X the industry in the last few years in this sub-segment. Air freshener industry is India is estimated at Rs.1200 Cr. and GCPL commands more than 50% market share in this segment also. The company is the leader in the liquid detergent segment – under the EZEE brand. This segment contributes 7-8% to the domestic revenues of the company. Air freshener and liquid detergent are the fastest growing products in GCPL’s portfolio at 35% CAGR.

GCPL enjoys the patronage of 1.15 billion consumers across different businesses. Such a strong reach is a result of its focused policies. GCPL follows a 3×3 strategy. It effectively means that the company caters to three markets – Asia, Africa and Latin America (LATAM), across 3 segments – Home Care, Personal Care & Hair Care. Reason for choosing these geographies is that they are emerging markets growing faster than developed countries and these geographies have demographics similar to India. This strategy has effectively helped the company to engage in cross-selling its existing products. GCPL also continuously innovates to boost revenues, for eg. It introduced smart card to replace Coils as coils had low margins and it was an instant hit especially in rural areas.

All the segments that company operates in have very low penetration (except soaps). GCPL has market leadership in Household Insecticides, Hair Color and Air Fresher in India and is No.2 player in soaps segment. It is also Household insecticides and Air fresheners in Indonesia, Hair Color & extensions in Africa and No.2 in Hair Color segment in Argentina and Chile. GCPL derived majority of its international income from Indonesia till FY16 but Africa has shown the fastest growth and now constitutes more than 50% of international revenues.

GCPL has resorted to acquisition in international markets to gain a strong foothold. It has only acquired brands with market share of >50% in their respective markets. This has also led to huge pile up of debt.

But in the last few years company has seen a significant slowdown in its revenue growth. GCPL showed strong revenue and PAT growth in first half of the decade growing at ~17% CAGR but that changed significantly as revenues grew at only 5% CAGR over last 5 years. GCPL also has much lower ROCE (17%) compared to its peers in FY20. Management has indicated that they are not optimistic of any sharp revival in earnings over the next 2 years.

GCPL’s slow loss of dominance in Hair Colour, the advent of unorganized incense stick players and weak execution on the Africa business remain points of worry.

Final Thoughts:

GCPL has a strong management team and has demonstrated in the past its ability to scale up businesses. But weak environment and intense competition have strongly affected growth prospects. It is trading at a 5-year low PE of 25x and any turnaround in growth prospects has the potential to bring huge returns for its investors.