GCPL slides 7% as Q2 margins contract; analysts flags input cost pressures

After GCPL's Q2 earnings, brokerages have said that inflation remains a drag and that near-term margin pressure is likely to persist amid elevated commodity prices.

Shares of Godrej Consumer Products Ltd (GCPL) came under pressure on Friday after the company announced its Q2FY27 results, despite reporting a nearly 14 per cent Y-o-Y rise in net profit, supported by volume growth.

 

The Godrej Group stock opened lower at ₹815 and extended its decline to hit an intraday low of ₹777.20 on the National Stock Exchange (NSE).

 

As of 10 AM, GCPL shares were trading 3.6 per cent lower at ₹806.50, with around 4 million shares changing hands. The stock was the top loser on the Nifty FMCG index, which was down 0.53 per cent.

 

In comparison, the benchmark Nifty 50 was trading 40 points, or 0.18 per cent, higher at 22,980. GCPL Q2FY27 results 

 

As per a regulatory filing, the company reported a 13.84 per cent Y-o-Y increase in its Q2 consolidated net profit to ₹522.92 crore. It had posted a net profit of ₹459.34 crore in the July-September quarter a year ago.

 

Revenue from operations rose 19 per cent to ₹4,413.09 crore in the quarter under review, against ₹3,708.19 crore in the corresponding period of the preceding fiscal.

 

In Q2FY27, consolidated sales grew by 19 per cent Y-o-Y on the back of underlying volume growth of 8 per cent, the company said in its earnings statement. 

 

The FMCG firm's Ebitda grew by 12 per cent Y-o-Y to ₹820 crore. Ebitda margin contracted to 18.6 per cent in Q2FY27 versus 19.8 per cent in the corresponding quarter in the preceding year. Inflation remains a drag  

After the Q2 earnings, brokerages have said that inflation remains a drag and that near-term margin pressure is likely to persist amid elevated commodity prices.

 

The company reported a 300 bps contraction in gross margin to 47.6 per cent in Q2, compared with 50.6 per cent a year ago. According to Motilal Oswal Financial Services, elevated input cost inflation limited earnings conversion, with the decline primarily driven by higher costs of crude-linked derivatives, palm oil and other raw materials. Input cost inflation to intensify in Q3 

The management in its earnings statement said that input cost environment remained significantly challenging during the quarter and expects input cost inflation to intensify in Q3.

 

"This has led to one of the highest inflationary impacts in the last many years," GCPL said, adding that the impact of inflation has been approximately high-single-digit. 

 

The management said that it has already taken stringent pricing actions and "will continue to take calibrated pricing actions", specifically in soaps and liquid detergents where the cost impact is large and the margins are below normative levels.

 

GCPL share price target As per MOFSL, calibrated pricing and cost-saving initiatives should support GCPL's absolute Ebitda growth, but margin recovery hinging on pricing realisation and input-cost trends.

 

The brokerage has maintained its 'Buy' rating on GCPL, with a target price of ₹1,050. It models a 14 per cent revenue and 13 per cent Ebitda CAGR over FY26-29E.

 

Meanwhile, Jefferies has cut GCPL's earnings estimates by 2-3 per cent to factor in higher input costs and lower multiples to reflect the compression seen across the sector. The brokerage has retained its 'Buy' rating but trimmed the target price to ₹1,075 from ₹1,400. 

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