Godrej Consumer Share Price soars 22%, hits UPPER CIRCUIT; Jefferies says BUY, price target Rs 1000

Sudhir Sitapati, ED (Foods) at HUL, is set to take charge as the MD & CEO of Godrej Consumer Products from Oct-21. While there are a lot of unknowns, history of CEO changes at Britannia, Jubilant Food, HUL, Dabur suggest that a new leader could bring about a paradigm shift, driving significant shareholder value. Godrej Consumer Products has underperformed most of its peers in the past few years, which may change as the new leader brings-in a new strategy that may entail some hard decisions. Sudhir Sitapati is currently Executive Director - Foods & Refreshment at HUL. In his 22 year stint at Unilever, he led categories & functions in India, Europe, SE Asia & Africa. In 2016, Sudhir made it to HUL's Management Committee as one of its youngest members. He played an important role in the merger & integration of GSK Consumer.

Jefferies says that while the new CEO joining is still six months away, we see this announcement as a trigger for a re-rating and they raise the price target to Rs 1000 (from Rs 840). Jefferies Retain Buy rating on the stock and Godrej Consumer Products remains top picks in FMCG speak. Jefferies says that HUL has capitalised on emerging channels alongside bringing sophistication in the kirana network with initiatives like Shikhar app, WIMI etc. Godrej Consumer Products still is under-indexed in rural areas, which provides opportunity.

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Jefferies says that a few years back, Godrej Consumer Products' key strength had been its disruptive launches. While the efforts have continued, recent launches have not been able to add meaningfully to the growth. With HUL's acute focus on categories of future, we would like to see more investment in the future growth drivers, which may require a 360 degree effort & execution and even forays into newer segments.

Jefferies says that over the past few years, Godrej Consumer products has seen high volatility across businesses.  Quarter to quarter volatility has also been quite high across categories in India - while there have been external factors at different points, Godrej Consumer Products has seen a high level of volatility unlike many of the peers. Africa has seen significant investments but faced multiple challenges due to volatility, unpredictability, poor returns etc. While the cluster now has a strong CEO, Jefferies highlights that Sudhir will have to take a hard look at this complex geography and go for some tough decisions, if required.