Should you buy Goodknight, Cinthol maker stocks? Here is an analysis

Godrej has been a brand name that every household is familiar with. From its hair products, self-care items to non-harmful insect repellents, each individual has encountered with one Godrej product or the other. When we talk about FMCG products, then Godrej Consumer Products (GPCL) has made its mark with newer and better products that suit not only the domestic customers but also the consumers living overseas. Interestingly, because of the company's consistency in vowing consumers, the Godrej Consumer has now become a money making machine on stock exchanges as well. 

Vivek Gambhir Managing Director & CEO GPCL, in a conversation with Edelweiss, said that he is optimistic on new launches (incense sticks) ,  abating concerns on international business (IB) sustainable earnings potential in untapped domestic segments and potent margin boosters in multiple cost rationalisation initiatives across divisions & geographies.

Edelweiss's head researcher, Aditya Narain, pens down reasons on how this company will be a good stock to buy:

1.Naturals agarbatti launch, tightening regulations to spur Household Insecticide revival

Rising competition from unorganized players’ mosquito repellent incense sticks has taken the wind out of GCPL’s HI sales over the past couple of quarters. To counter this challenge, GCPL launched Goodknight Naturals Neem Agarbatti in December 2018 on pilot basis, with Rs 1.5 per stick which last 3 hours. Furthermore, the government has started regulations on illegal incense stick makers, which will help organised players like GCPL gain more ground. 

2. International business: Concerns abating; on recovery road

Godrej's business in Africa is showing signs of gradual recovery with QoQ improvement in profitability. Moreover, in Indonesia, post a negative FY18, growth so far in FY19 has been consistently improving MoM with GCPL getting back its lost market share.

3.Recovering rural demand a potent growth catalyst

Post demonetization and GST, the rural market had taken a heavy toll. But the Godrej management believes that that growth has picked up meaningfully in rural areas. It also mentions that is observed a seeing gradual recovery in consumer demand. Management has reiterated that rural growth continues to outpace urban counterpart.

4. Other strong levers for domestic revenue surge

Over the five quarters, Godrej has performed well when it comes to getting a double digit spurt in soap sales. 

It has also made a niche with the grooming products  that are targeted towards men including Cinthol Shave + Face Wash & Cinthol After Shave + After Trim (Face), Cinthol Head to Toe Wash (Body), Cinthol Hair Cream & Cinthol Hair Gel (Hair) and Cinthol Beard Oil, Cinthol Beard Wax & Cinthol Beard + Face Wash (Beard).

With products like herbal based powder hair colours and handwashes and sanitizers, Godrej has managed to keep up its sales in such products i.e Nupur Hair colour and Mr. Magic Handwash

Where is Godrej headed? 

Godrej is really focused on innovation and cost efficiency.

Edelweiss states that, the rural growth will accelerate domestic growth whilst the recovery in Indonesia and Africa will aid in business internationally. He further adds that they assign 10% discount to HUL’s target multiple to arrive at TP of Rs 874. At CMP, the stock is trading at 38.7x/34x FY20/21E EPS.