GCPL shares to perform well in short term post Q1 update, retain Buy: Nuvama

Godrej Consumer Products Ltd (GCPL) has posted a robust Q1FY26 business update, according to Nuvama, which forecasts a positive outlook for the company. The firm highlighted that there is a "beat on India volumes; and that the outlook is strong," suggesting that GCPL's stock is expected to perform well in the near term.

The FMCG sector, excluding summer-related categories, is showing unexpected positive trends. "FMCG companies (ex-summer categories) are surprising positively, indicating the worst of slowdown is behind and a gradual recovery ahead, it said." Nuvama noted that GCPL is among the firms benefiting from this sectoral recovery. This trend suggests that consumer confidence is gradually returning, which could further bolster GCPL's performance in the coming quarters.

Home insecticide (HI) in India has exceeded expectations with mid-to-high single-digit growth, largely driven by incense sticks and new electrical formulations. This growth is attributed to a strong June recovery, aided by new advertising campaigns and favourable weather conditions. However, aerosols remain weak, which could impact overall performance. The company is likely to focus on strengthening its aerosol segment to mitigate these weaknesses.

The domestic segment is anticipated to deliver high-single-digit value growth, driven by mid-single-digit volume growth. Although the soaps category has exhibited weakness due to grammage cuts, it is expected to recover from Q3 FY26 onwards. Nuvama remarked, "EBITDA margin for Q1FY26 could be below normative range." This indicates a cautious approach as the company navigates through fluctuating market conditions.

Indonesia's market has faced challenges, with flat volume growth and potential year-on-year sales decline due to competitive pressures in home insecticides and air fresheners. Conversely, the GAUM business is expected to experience strong double-digit value and volume growth, bolstered by solid profitability. This international performance highlights the diverse challenges and opportunities GCPL faces across its markets.

The outlook for GCPL is optimistic, with the company targeting mid-to-high single-digit volume growth for FY26. On a standalone basis, GCPL is expected to witness high single-digit revenue growth and double-digit EBITDA growth. This projection aligns with the company's strategy to enhance its market position and leverage its strengths in various segments. The strategic focus on innovation and market expansion is likely to drive sustained growth.

The company's consolidated revenue is expected to grow by approximately 11.2% year-over-year for Q1FY26. Meanwhile, the EBITDA margin is forecasted to decline by 400 basis points due to increased palm oil prices affecting soap margins. This impact is partly attributed to disruptions caused by competitors like HUL in the soap sector, which could influence pricing strategies. The company is expected to explore cost optimization measures to counter these challenges.

In summary, Nuvama has retained a 'Buy' recommendation for GCPL with a target price of Rs 1,460. The firm anticipates that GCPL's stock will experience favourable movement, bolstered by the company's strategic initiatives and promising growth prospects across various segments. This positive outlook reflects confidence in GCPL's ability to navigate challenges and capitalize on growth opportunities, ensuring long-term shareholder value.