Accelerating growth trajectory, margin gains for Godrej Consumer Products

The June quarter results of Godrej Consumer Products (GCPL) was a mixed bag as the company delivered on volume and revenue fronts while margin performance was sub par.

 

While consolidated volume growth came in at 8 per cent, the Indian business saw mid-teens volume uptick with the exception of the soap portfolio.

 

Brokerages are positive on expectations of steady volume growth trajectory and margin recovery in the second half of FY26.

 

The India business, which accounted for 63 per cent of consolidated revenues, posted a 7.7 per cent growth in revenues.

 

While the strong show was led by the homecare segment, revenues for the soap business were flat as volume remained under pressure.

 

Homecare grew 16 per cent over the year-ago quarter, led by the household insecticides segment.

 

The company gained market share in the insecticides segment with a double-digit volume growth in electrics while incense sticks recorded a jump of 2.5 times Y-o-Y. The aircare, fabric care and hair colour businesses saw double-digit growth. 

 

The company gained market share in the fabric care business with volumes growing in double digits for the sixth consecutive quarter and gains for liquid detergent brand Fab despite taking price hikes.

 

GCPL posted mid-teens growth in deodorants and perfumes with price reduction in markets such as Tamil Nadu resulting in a twofold jump in volumes.

 

Commenting on the performance in Q1, analysts led by Naveen Trivedi of Motilal Oswal Research, said, “The Indian business is gradually getting back on track for accelerated volume growth, with Q1 performance reinforcing confidence in an improving trajectory.”

 

International business sales were led by strong growth in Africa, Latin America partially offset by weakness in Indonesia.

 

Sunny Bhadra and Krishnan Sambamoorthy of Nirmal Bang Research believe that Indonesia remains a key monitorable with a combination of macro slowdown and increased competitive intensity. These could have an impact on consolidated yearly operating profit growth if the situation does not improve on either of the fronts.

 

Higher raw material costs, however, offset the gains on the revenue front.

 

Gross margins were down by 400 basis points (bps) Y-o-Y and 60 bps Q-o-Q to 51.9 per cent.

 

What helped the company arrest the fall on the operating profit margin front was the flat employee and other expenses as a percentage of sales. 

 

This coupled with lower advertising cost — which was down 140 bps Y-o-Y — restricted operating profit margin contraction to 280 bps to 19 per cent.

 

With palm oil prices easing towards the end of June, the company is expected to recover its margins in the second half.

 

The combination of volume traction and margin tailwinds strengthens earnings visibility, says Motilal Oswal Research.

 

The brokerage sees 11 per cent revenue growth and 13 per cent operating profit growth over the FY25-28 period. It has a buy rating with a target price of ₹1,400 per share.

 

Kotak Research has cut earnings estimates by 4-5 per cent incorporating a weak Indonesia outlook, competitive pressure in India soaps and the recent increase in palm oil prices.

 

It has an add rating with a target price of ₹1,260 per share.