Godrej Consumer shares hit record on after in-line Q3 results. Buy, sell or hold?

Shares of Godrej Consumer Products Limited (GCPL) rallied 10% to hit a record high in Thursday's trade after the Godrej Group FMCG arm's December quarter results stood in-line, with revenue growing 2%, affected by the 8% decline in international business (currency driven). At 9:40 am, the scrip was trading 9.88% higher at ₹1,279.20 apiece on the NSE.

Topline growth was soft, as organic growth was impacted by price-cuts in Soaps and adverse currency issues in Africa and Latam. Profitability, however, surprised positively led by much better gross margin and impressive costs management.

Geography-wise, the India business volume grew by 12% and sales rose 9% year-on-year in the third quarter. EBITDA margins improved to 23 on-year. International business continues to revitalisde the margin profile.

What really stands out for GCPL is the management prowess to get the basics right and its appetite for category disruptions, said domestic brokerage house Emkay Global in its research note. "We now see actions falling into place which will help GCPL outshine, though macro and seasonality risks remain," it said.

In the disruption series, Godrej Consumer has launched a most affordable liquid detergent which is currently in South India in the third quarter; in January it has addressed efficacy issues in household insecticides (HI) with the new patented RNF molecule (launch under the incense-stick format).

Under new leadership, execution has seen a facelift. The new management is not only simplifying businesses, but is focused on category disruptions, which aid share gains, Emkay said while maintaining an 'Add' rating on the counter, with a target price of ₹1,325 per share.

According to Nuvama Institutional Equities, the new Renofluthrin (RNF) molecule by GCPL currently introduced in incense stick format (to be introduced in other formats soon) could be disruptive.

Nuvama highlighted that GCPL doesn't aim to enter categories, which are highly penetrated. The launch of RNF is a meaningful move and GCPL will launch it in more formats soon. The RNF molecule had been in worksfor a decade; registration takes five–six years and then registration of format takes one–two years. GCPL has 15–20% market share in laundry liquid category. Not just premium consumers, but a lot of mid-premium and mass consumers have moved to laundry liquid category.

Accordingly, the brokerage has retained its 'Buy' view with a target price of ₹1,325 from ₹1,250 per share earlier.

In its report, JM Financial said the company's management sounded pretty confident about the structural impact that these improved-formulation products would have on HI growth trajectory going forward. Launch of the new low-priced liquid-detergents is equally interesting and could necessitate response from competitors sooner or later, it said.

"We believe the execution machinery being put in place by GCPL is yielding good results with improvement seen in underlying metrics alongside higher cash-generation," it said with a 'Buy' rating and a target price of ₹1,335 per share.