Godrej Consumer Products’ Q1 shows it is not out of the woods yet
PremiumWhile high commodity costs weighed on margins in Q1, higher marketing investments aggravated the fall at Ebitda level
Shares of Godrej Consumer Products Ltd. (GCPL) haven’t moved much since its June quarter (Q1FY23) results were announced during market hours on Wednesday. The company held its earnings call on Thursday, commentary from which, too, has not brought much cheer to investors.
GCPL continued its trajectory of subdued performance in its key Indonesia market and expects the situation to only get better from Q3FY23, on the back of improving macro situation there. Also, the company remarked that its strong market position and media investments, which resulted in share gains in Indonesia, and its determination to reduce trade pipeline would aid performance going ahead.
While high commodity costs weighed on margins in Q1, higher marketing investments aggravated the fall at Ebitda (earnings before interest, tax, depreciation and amortization) level in Indonesia. Ebitda margin fell 810 basis points year-on-year (y-o-y) to 15.3%. One basis point is 0.01%.
Higher media spend also impacted Ebitda margin in Africa, the US, and in the Middle East as it dropped by 160 bps y-o-y to 8.3%. However, the momentum in sales growth, in constant currency terms, was intact at 12%. GCPL aims to tighten governance and simplify the business structure in this segment. And with this, it expects to reach double-digit Ebitda margin by 2025. A favourable mix would also aid in this endeavour, according to the company.
The bright spot in Q1 results was the personal care segment in the India business as both personal wash and hair colour saw good performance. But the home care segment reported a 4% y-o-y drop in sales as household insecticides was impacted by high base and weak season. However, on a two-year compound annual growth rate (CAGR) basis, sales in the home care segment grew 8%.
Moving ahead, the company reiterated its FY23 guidance of double-digit growth in sales with low to mid-single digit volume growth. The margin is expected to recover from second half as inflationary pressures recede. GCPL continues to focus on category development and has scheduled a slew of initiatives in Q2 for the same.
“Results of category development have become a key marker for (GCPL’s) stock performance. In household insecticides, new communications and continued resilience in non-mosquito portfolio are other key positives. The confidence on success in personal wash is high (new formats) and we believe GCPL can also have a bigger play in fabric care," said analysts at ICICI Securities in a report on 4 August.
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Shares of the company are down by nearly 12% so far in calendar year 2022 vis-a-vis a 14% rise in the Nifty FMCG index.
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