Q3 sales recovery, easing costs to drive gains for Godrej Consumer Products

The stock of Godrej Consumer Products (GCPL) is trading at its monthly highs, rising 2.5 per cent over the past month while its peer index is down 2 per cent over the same period.

 

The monthly gain reverses its underperformance over the past three months.

 

There are expectations that the third quarter (Q3FY26) will see an improvement in its operating performance which was sub-par over the last couple of quarters due to raw material pressures and Indonesia performance.

 

While the Indonesian operations will take time to recover, brokerages expect the India revenues and margins to recover from the December quarter.

 

At the current price, the GCPL stock is trading at 44 times its FY27 earnings per share.

 

The positive trigger for the stock is the recovery in India business growth and margin from the December quarter (Q3FY26).

 

The India business saw a sales impact of up to 4 per cent in Q2FY26 on the back of destocking and pricing disruptions especially in soaps (volume and value impact) and hair colour due to cuts in Goods and Sales Tax or GST.

 

Emkay Research points out that GST cuts have boosted consumer sentiment, and growth benefits are likely to be visible going ahead.

 

Further, the management expects price stability in palm oil, though it mentioned that the long-term trend is difficult to predict.

 

Gross margins in the past couple quarters were down due to sharp palm oil inflation. On the back of multiple cost initiatives, the company remains confident of a recovery in India business margin to 24-26 per cent, a normative band, from H2FY26.

 

Meanwhile, soap volumes would see recovery as the price action is already in the base. The revenue growth for the India business in H2FY26 is expected to be in high single digits to double digits, with volume growth in the high single-digit to low double-digit range.

 

Analysts led by Naveen Trivedi of Motilal Oswal Research points out that macro demand recovery is steadily improving, and GCPL has been aggressively focusing on new growth levers, distribution reach opportunities in rural markets, and market expansion.

 

Volume for categories excluding soaps have been in double digits. While growth in the June quarter came in at mid-teens, it was in double digits in Q2FY26 reflecting the robust demand for these categories.

 

In household insecticides, the company’s mosquito repellent molecule Renofluthrin is driving growth across formats and has helped it increase market share. While Fabric Care (Ezee and Genteel) continues to post robust growth, the liquid laundry detergent Godrej Fab is driving market share gains.

 

There could, however, be a near term growth headwind in the Indonesian market.

 

While the company reported a 14 per cent revenue growth in this market in FY25, there could be a sales decline in FY26 due to higher competition.

 

There could be a mid-single digit growth in FY27 driven by volumes. Margins in the Indonesian business are likely to improve from 22 per cent now to 24 per cent over the medium term. The Africa business could register a high teen growth in Q3 on the back of a low base while Q4 growth is expected in single digits.

 

Motilal Oswal Research has marginally increased its earnings per share estimates by 2 per cent for FY27 and 1 per cent in FY28. The brokerage expects the company to deliver an annual growth of 11 per cent in sales and 18 per cent in net profit over FY28. The brokerage, which has a buy rating, expects the stock to witness a rerating in the valuation multiple given the improved earnings outlook.