Godrej underperforms December quarter; misses market expectations

Godrej Consumer Products’ December 2019 quarter (Q3) performance was a tad below the market’s expectations. On a consolidated basis, while GCPL’s net sales grew 2.1 per cent year-

on-year (YoY) to Rs 2,775.1 crore, its profit after tax was up 7.7 per cent YoY to Rs 449.6 crore. Analysts were expecting these two numbers at Rs 2,790 crore and Rs 450 crore, respectively. 

The company continued to focus on volumes. On a sequential basis, GCPL, owner of popular consumer brands, such as Goodknight and Cinthol, was able to maintain its domestic volume growth at 7 per cent despite the further deterioration in consumption demand in Q3.

Besides lower base (1 per cent volume growth in Q3FY19), new launches, an effective marketing campaign, and price cuts continued to protect the broad-based volume growth of GCPL’s domestic business. While GCPL clocked a 3.2 per cent rise in its household insecticides (HI) segment, its soaps and hair colours businesses each witnessed about a 4 per cent decline YoY.

However, volume growth (led by price cuts) came at the cost of margins. 

Despite the benign input cost trajectory, the company’s gross margin expansion was limited to just 49 basis points. This, along with higher other expenses, mainly because of one-time expenses, further reduced operating profit margin expansion to just 36 basis points.

Sameer Shah, head-finance, India and Saarc, GCPL, says: “Our focus on volume growth and market share is likely to continue.” 

Though the scaling up of new launches and innovation will support volumes, protecting margin will be difficult, given the inflationary pressure in segments like soaps and competitive intensity.

Nitin Gupta of SBICAP Securities believes that price hikes to pass on higher input cost in segments like soaps will be difficult for GCPL, given strong competition, though there can be some improvement in the HI segment. Near-term earnings growth is unlikely to be strong for GCPL.