Godrej Consumer slips 7% post September quarter business update

The company expects their EBITDA to decline in mid-teens in the September quarter of FY23, due to consumption of high-cost inventory, high marketing spends and weak Indonesia performance

Shares of Godrej Consumer Products Limited (GCPL) slipped 7 per cent to Rs 836.75 in Thursday’s intra-day trade, in an otherwise firm market, after the company expected mid-teen drop in EBITDA for the September quarter (Q2FY23), due to high inventory costs, high marketing spends, and weak Indonesia performance.

Despite that, significant correction in commodities like palm oil derivatives and crude oil, the personal care products company expects recovery in consumption, expansion in gross margins, and upfront marketing investments in the upcoming quarters.

“The Indian FMCG industry continued to remain soft during the quarter. Rural markets witnessed slower growth compared to urban. However, with moderation in inflationary pressures due to correction in commodity prices and monsoon trends largely being on track (apart for a few states), we expect consumption to improve in the second half of the year,” GCPL said in Q2FY23 business update.

The Godrej Group company foresees constant currency sales growth in Latin America businesses.

“At a consolidated level, we continue to leverage our category and geographic portfolio. We expect to deliver higher than mid single-digit sales growth with a close to double-digit 3-year CAGR. We expect close to double digit sales growth ex Indonesia’s Hygiene comparator,” GCPL added.

Meanwhile, analysts believe that the appointment of new CEO at GCPL offers scope for transformative change, especially if the company is able to grow its domestic business strongly and continue on optimal capital allocation strategies.

"With investments by the new CEO being focused on boosting growth in the high margin, high-RoCE domestic business, the company’s medium-term earnings growth outlook is strong,” Motilal Oswal Financial Services said.

That said, inspite of Thursday's decline of GCPL at the bourses, in the past six months, the stock has outperformed market by surging 13 per cent, as compared to 2 per cent decline in the S&P BSE Sensex.

However, in the past one year, it has underperformed the market by falling 16 per cent, as against 1 per cent decline in the benchmark index.