GCPL has a good start to 2023; sustaining Q3FY23 show is vital

In a report on 5 January, analysts from Jefferies India wrote, “Chief executive officer (CEO) Sudhir Sitapati continued to place building blocks, but recovery is taking way longer than the general expectation. Many investors have started to now doubt the category potential across key markets and the onus is on the management to turn around.”

Against this backdrop, GCPL’s pre-quarter update for the three months ended December (Q3FY23) is encouraging. Q3 performance is better than anticipated. This is the first quarter to showcase meaningful improvement under the new managing director’s (MD’s) leadership, said analysts at Nuvama Research in a report on 5 January.

Sitapati took charge as MD and CEO of GCPL in October 2021.

After three consecutive quarters of year-on-year (y-o-y) decline in GCPL’s domestic volumes, Q3 would see a low single-digit growth in this measure. Moreover, the HI business is likely to have seen a recovery last quarter.

Additionally, there is some respite in the Indonesia business with a constant currency sales drop in low single digit y-o-y. For perspective, sales had dropped by 11%-12% in Q1 and Q2.

Overall, GCPL expects consolidated volumes to be flat in Q3 and constant currency sales to grow in mid-teens. With the drop in palm oil prices from its peak, margin is expected to rise sequentially but it is likely to be lower y-o-y.

All said, weak rural demand in domestic markets continues to be an overhang. Other fast-moving consumer goods (FMCG) companies such as Marico Ltd and Dabur India Ltd have also highlighted that rural markets were subdued in Q3 in their respective updates.

To be sure, “Investors would watch if GCPL’s performance in Q3 sustains going forward. A continued healthy run rate in the HI business and improving momentum in the Indonesia operations would act as key catalysts for the stock,” said Alok Shah, analyst at Ambit Capital.

Nonetheless, for GCPL’s investors, 2023 has begun on a good note. GCPL’s shares are up by almost 5% so far compared to a mere 0.6% gain in the Nifty FMCG index. The stock trades at 42 times its FY24 estimated earnings, according to Bloomberg data.