Anand Rathi has issued a BUY rating for Godrej Consumer Products Ltd (GCPL), setting a revised 12-month target price of Rs1,430, down from Rs1,485. The recommendation is based on the company’s broad-based volume growth, consistent innovation across segments, and margin expansion potential in the second half of FY26. While the FY26 guidance was slightly conservative, the brokerage remains optimistic about long-term prospects driven by category development, international simplification, and rural distribution gains. At the current market price of Rs1,240, the stock trades at 53x FY26e EPS and 45x FY27e EPS, implying scope for upside if operational execution aligns with guidance.

Q4 Performance and Strategic Highlights

Volume Growth Rebounds Across Geographies: GCPL reported 6% consolidated volume growth in Q4 FY25, with the India business growing at 4%. Double-digit gains in the household insecticides (HI) segment and resilient demand in international markets, particularly Indonesia (5% volume growth) and GAUM (12% organic volume growth), supported the topline.

Revenue Performance Meets Expectations: Revenue grew 6% year-on-year, in line with expectations. Domestic revenue increased by 8%, with home care leading at 14% growth, while personal care grew by 4% despite a decline in personal wash volumes. Indonesia rose by 5%, and GAUM delivered a robust 23% organic growth.

Margins and Profitability Outlook

EBITDA Margin Shows Promise Despite Q4 Dip: EBITDA margin for Q4 stood at 21.1%, marginally lower year-over-year due to inflation in palm oil prices, which led to a 360bps decline in gross margin. This was partially offset by employee cost savings of 230bps.

Medium-Term Margin Guidance Remains Intact: Management reiterated its EBITDA margin target of 24-27% for the domestic business over the medium term. With palm oil prices softening and international profitability rebounding, GCPL is projected to clock a 130bps EBITDA margin expansion to 22.2% by FY27.

Category Innovations Drive Long-Term Growth

Product Expansion in Emerging Categories: The company launched several new products with high growth potential:

Fab liquid detergent, already seeing explosive growth with a 35% CAGR and ARR of Rs250cr.

Godrej Ninja in pet care, tapping into India’s Rs5,000cr pet food market, with a national rollout expected in FY26.

RNF molecule-based HI products, delivering 2x mosquito repellent efficacy.

Air Care and Deodorants Strengthen Portfolio: Air fresheners (e.g., Aer Pocket) grew with a 35% market share in India and exports to 50+ countries. In deodorants, the launch of KS Spark mini (reduced MRP to Rs99) and Bloq anti-perspirants aimed to improve GTM relevance and category penetration.

India Business: Rural Push and GTM Optimization

Rural Distribution Expansion via Project VISTAAR: The project has scaled rural reach from 35,000 to 80,000 villages, and 620,000 rural outlets, driving incremental growth, though at a 100bps EBITDA margin cost.

Simplified SKU and Process Structure: GCPL undertook structural rationalization by reducing SKUs by 20%, exiting unprofitable markets (e.g., Kenya), and simplifying operations, particularly in GUAM, where EBITDA margin improved from 9% in FY23 to 17% in FY25.

International Business Shows Renewed Momentum

Indonesia Registers Turnaround: Volume growth improved to 9% from 1% earlier (FY18-23), aided by better product mix, aggressive distribution ramp-up, and pricing corrections in key categories like HI electrics.

GUAM and RoW Margins Recover: EBITDA margins in Africa, the US, and Middle East markets rose to 17% in FY25, up from 9% in FY23, driven by restructuring and factory consolidation (e.g., Chile’s hair color plant shifted to India).

Financial Projections and Valuation Metrics

Key Guidance and Strategic Takeaways

FY26 Guidance Emphasizes Volume-Led Growth:

Standalone volume growth: mid to high single digits

Consolidated revenue growth: high single digits

Consolidated EBITDA: double-digit growth

PAT expected to outperform EBITDA due to a 400bps drop in ETR

Capex Plan and Dividend Policy: The company will deploy Rs700cr in capex over 18–24 months, focusing on organic expansion. Dividend payout is aligned with a 50% payout policy (±20%).

Valuation and Investment View

Revised Target Price: Rs1,430: Anand Rathi has revised down FY26e and FY27e estimates, trimming revenue by 5%, EBITDA by 6-8%, and PAT by 6.8–7.5%, yet retains a BUY rating. Despite near-term margin headwinds and slightly conservative guidance, structural improvements and innovation-led growth justify the long-term bullish stance.

Risks to Watch

Failure of new product launches, particularly in niche segments like pet care and deodorants

Inflation in raw materials, especially palm oil, could pressure margins

Intensifying price competition in key categories

Geopolitical instability affecting international markets, especially GAUM

Bottomline for Investors

Godrej Consumer Products continues to pivot toward sustainable, volume-led growth through innovation, rural outreach, and strategic simplification of its international footprint. While the FY26 guidance may not excite aggressive investors, long-term fundamentals remain intact. At 45x FY27e EPS and a TP of Rs1,430, the stock offers a well-anchored growth opportunity in the FMCG sector for patient investors seeking quality with visibility.