Sitapati will replace Nisaba Godrej, who had taken the additional role of CEO over and above her role as executive chairperson of the Godrej Group firm. However, Nisaba’s appointment had led to concerns over professionalism of the board.
“Brilliant step in our view as it addresses questions on professionalization at the top. HUL’s systems and processes are Gold standard for the sector and it will be a very positive development for GCPL,” brokerage firm Edelweiss Securities said on Sitapati’s appointment.
On Wednesday, the stock rallied almost 25% before paring the gains to end 22.19% higher in Mumbai trading and finish as the top gainer of the MSCI Asia Pacific Index.
Sitapati has spent 22 years in the country’s leading fast-moving consumer goods company, which is known to churn out one after another CEO candidates that are strewn across the sector at the helm of various companies. Sitapati was appointed in the HUL’s management committee back in 2016, making him one of the youngest members.
“We have met Sudhir in the HUL Analyst meet and were very impressed with his thought process, marketing acumen and leadership skills,” said Avinash Roy, FMCG analyst at Edelweiss Securities.
Godrej Consumer’s performance over the past five years has been less than exemplary as the slowdown in the domestic and key export market’s deeply hurt the company’s show. Further, lack of innovation and thrust on products has seen it underperform peers.
Shares of Godrej Consumer Products were down 1.4 per cent for the past three years compared with a 21 per cent gain in the Nifty FMCG index and 35 per cent rise in Nifty100 index.
The stock performance has significantly deteriorated compared with peers like HUL,
and Procter & Gamble Healthcare and Hygiene.
The company’s patchy track record on growth left the stock trading at a 45 per cent discount to HUL’s one-year forward price-to-earnings ratio of 63.1 and a 22 per cent discount to Dabur India’s one-year forward PE of 44.3 times, estimates by brokerage firm Sharekhan showed.
“We remain cautious as we believe two of its three core growth drivers (India household insecticides, Indonesia) are still not out of the woods and can moderate earnings. This can also continue to offset any good progress made in other businesses (recovery in Africa), hence lack of margin of safety cannot be ignored,” brokerage firm Nomura Financial Advisory and Securities India had said in a recent note.
Investors will hope Sitapati can bring the turnaround that former HUL employees who went on to lead other major FMCG companies have done for those companies’ stocks.
Varun Berry at
, Prati Pota at Jubilant Foodworks and Suresh Narayan at Nestle India—all former HUL hands— have been catalysts for growth and trailblazing stock performance for their companies.
“The stock has hugely underperformed many other consumer names in the past few years and we expect this to potentially reverse. The CEO change or professionalization can be a game changer in consumer companies,” Roy said.
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