Godrej Consumer Products (GPCL) - best FMCG stock

Godrej Consumer products - best FMCG stock

Godrej consumer products is a leading FMCG company based in India which manufactures soaps, personal and hair care items, and other home care products like insecticide, hand sanitizers, etc. Some of the popular brands of Godrej include Cinthol (soap), Renew (Hair Color), Colour Soft (Hair Color), Hit (insecticide), Goodknight (mosquito repellent - insecticide), Brylcream (hair styling gel), etc.

Godrej 3x3 strategy and recent acquisitions

Godrej Consumer products has been talking about its 3 x 3 strategy - a strategy to spread to 3 continents (Asia, Africa, South America) in 3 areas of Home Care, Personal Care and Hair care. Godrej has been aggressive in its expansion plans to the above mentioned continents (frequently referred to as the emerging markets) and its recent five acquisitions include
  • Acquisition of the Issue group (hair color) in Latin America.
  • Acquisition of Tura Brand in Nigeria.
  • Acquisition of Megasari group in Indonesia.
  • Acquisition of the remaining 51% stake in Godrej Sara Lee (a joint venture)
  • Acquisition of Argencos (hair styling cream) in Latin America.

Godrej Consumer products - stock price and financials

Godrej consumer products stock is currently (as I write this post) selling at a price of about Rs. 343 which is at about 40 P/E. 40 P/E is very high. It looks likely that godrej will grow at about 20-25% in the coming years, which vaguely speaking justifies a P/E of about 20-30. However, despite the high P/E, the stock seems to be cheap, especially because of its current acquisitions. According to a press release by Godrej, it expects to see revenues of Rs. 4000 crore in the coming financial year as a result of the coming acquisitions. This is more than 3 times its current revenues. This together with the anticipated growth of 20% in the coming years points out about 50% possible upside in this stock. The debt arising from the above acquisitions is not likely to decrease the valuations so much because of a healthy ROCE (of about 30%). Especially because of the acquisition and the current valuations, this stock is likely to provide over 30% returns per annum for the next two years.

Competition with HUL

Hindustan Unilever remains a market leader in several segments (like soap) in India. However HUL seems to be slowly loosing its market share to Godrej, which has slightly less expensive prodcuts. Moreover profit margins of Godrej are significantly higher than those of HUL. This is what makes GodrejCP one of the best FMCG stocks available right now in Indian stock market.

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