MOSL: THE CORNER OFFICE (GODREJ CONSUMER PRODUCTS) — Recovery imminent in domestic business-Confident of international growth prospects

​THE CORNER OFFICE (GODREJ CONSUMER PRODUCTS) — Recovery imminent in domestic business; Confident of international growth prospects

Mr. Vivek Gambhir — Managing Director

Vivek Gambhir is the Managing Director, Godrej Consumer Products Limited (GCPL). Vivek joined Godrej Industries in 2009 as Chief Strategy Officer and was responsible for enhancing the strategic capabilities within the group companies, guiding overall group strategy, conducting portfolio analysis, leading mergers and acquisitions and driving special projects. Under Vivek's leadership, the Group's planning processes became more robust. He helped define the CREATE portfolio strategy and the 10X10 objective for the Group. Vivek also led the finance, investor relations, legal and IT functions for Godrej Industries. He was also the secretary to the Godrej Family Business Board (FBB).

We recently hosted Mr Vivek Gambhir (MD, Godrej Consumer Products) at our recently organized Godrej Day, which also saw participation of CEOs of Godrej Properties and Godrej Agrovet.

Key highlights of our meeting with Mr Gambhir:

• Despite GST 2.0 causing minor disruptions in 3QFY18, Godrej Consumer Products' (GCPL) India business outlook appears to be encouraging, with (i) the significant acceleration in the pace of innovation planned over the next two years and (ii) the shift in trade to the organized from unorganized segment - still early days though - as the key drivers.
  
• GCPL is also confident of the growth prospects in Africa. For this business, it targets USD1b sales and expects EBITDA margin to move from 16% to 19-20% over the next 5-6 years.
  
• In Indonesia, sales recovery and working capital improvement are taking longer relative to expectation as well as the guided timeline.
  
• GCPL's earnings growth has been more consistent than FMCG peers (FY17 reported the eighth consecutive year of double-digit EBITDA and PAT growth). However, given its exposure to various geographies, attendant currency risks and relatively low RoE (mid-20s), we believe the stock does not warrant a higher multiple. Maintain Neutral with a target price of INR1,015 (39x Sep'19E EPS, 5% premium to three-year average).