Strong India biz growth to drive gains for Godrej Consumer Products

Godrej Consumer Products Ltd (GCPL) reported a 2 per cent year-on-year (Y-o-Y) increase in consolidated revenue to Rs 3,670 crore. Organic revenue growth in constant currency was up 14 per cent Y-o-Y. Consolidated operating profit was up 5 per cent to Rs 760 crore, profit before tax grew 10 per cent Y-o-Y to Rs 710 crore, and adjusted net profit grew 12 per cent Y-o-Y to Rs 490 crore.

 

Consolidated organic volume growth was 5 per cent. India volume grew 7 per cent Y-o-Y. Gross margins expanded 70 basis points Y-o-Y to 55.6 per cent. Operating profit margin expanded 70 basis points Y-o-Y to 20.8 per cent.

 

India revenue grew 6 per cent Y-o-Y with 7 per cent volume growth. Home Care had 12 per cent growth. Household insecticide (HI) saw single-digit volume growth. Air fresheners and fabric care had a double-digit volume growth.

 

The personal care portfolio registered only 3 per cent Y-o-Y growth. Personal wash was flat in volume with market share gains. Hair colour volume grew double digits. Deodorants and sexual wellness had strong double-digit volume growth.

 

International performance was hit by currency volatility. Indonesia revenue was up 11 per cent Y-o-Y (9 per cent), the GUAM (Godrej USA, Africa, Middle East) revenue was flat Y-o-Y (down 10 per cent). The Indonesia business operating profit margin expanded by 140 basis points Y-o-Y to 19.4 per cent. Operating profit grew 17 per cent. 

 

GUAM organic revenue was flat. Volume declined 8 per cent. But the GAUM operating profit  margin expanded 590 basis points Y-o-Y to 14.4 per cent. Absolute operating profit grew 33 per cent to Rs 93 crore. Latin America Market (LATAM) saw 36 per cent Y-o-Y growth (145 per cent) and operating profit margin rose 660 basis points to 5.7 per cent. Stability in Argentina is positive for LATAM, while a more stable situation in Africa is also beneficial.

 

India sales grew 6 per cent Y-o-Y to Rs 2,300 crore in Q2FY25 with volume growth of 7 per cent. Gross margin contracted 210 basis points Y-o-Y to 56 per cent. The operating profit margin fell 145 basis points Y-o-Y to 24.3 per cent while operating profit was flat Y-o-Y at Rs 560 crore.

 

The near-term margin outlook faces headwinds, given raw material inflation and slow urban demand. Management expects volume growth of 6-8 per cent and price growth in H2FY25. Consolidated operating profit margins may drop in Q3FY25 due to seasonal factors, particularly in GUAM.

 

Management expects 3-4 per cent annual pricing growth in HI though illegal incense sticks offer better margins and discounts. Sequential price hikes on soaps have been implemented. The RNF molecule is showing promising growth in incense sticks.  The effective tax rate will rise by 100 bp to 30 per cent in FY25 but decrease in the next financial year. The RCCL subsidiary is expected to fall slightly short of the operating profit target of Rs 140 crore -150 crore.

 

GCPL has implemented disruptive innovations, like new access packs, and increased advertising expenditure to propel growth in domestic business. It is working to expand the total addressable market for India, along with product innovation but high inflation in palm oil due to changes in import duty has impacted the operating profit. High palm oil prices are a short-term issue and GCPL hopes to recover margins through price hikes and cost stabilisation. Further, high palm oil prices may favour branded players over regional players.

 

The company aims to achieve high single-digit growth in FY25 and gain share in rural markets. Under its project Vistaara 2.0, it aims to double outlet coverage and triple village coverage. Most analysts remain ‘positive’ on the stock.