Domestic sales of Godrej Consumer Products Ltd (GPCL) slowed in the December quarter. Its domestic sales grew by 16% over the same period last year, compared with 27% growth in the September quarter. Its international business, however, did quite well, growing by 26%. GCPL’s overall growth rates are still good, with its consolidated revenues (including Godrej Sara Lee Ltd’s numbers) growing by 53%, but lower than the 65% seen in September.

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A slowdown in its domestic soaps business was the main culprit. GCPL’s soap sales grew by 12% over a year ago, much lower than the 28% growth reported in September. The company said that the consumer goods industry had grown at a slower rate in the December quarter. Its market share fell to 10.3% from 10.7% in the previous quarter. Market leader Hindustan Unilever Ltd has been under pressure to revive sales growth in categories such as soaps and laundry products. It has gone all out in the past two quarters, relaunching products, cutting prices and increasing advertising and promotional spending. Its aggression is likely to have affected other players.

But GCPL has maintained profitability, with its stand-alone operating profit margin at 19.7%, up from 13.5% a year ago and steady compared with the previous quarter. Though prices of vegetable oils (input for soaps) have been rising, they are still lower compared with a year ago. At the consolidated level, which includes Godrej Sara Lee and international operations, its operating profit margin was also 19.7% compared with 13.1% a year ago.

Net profit increased by 113% to Rs85 crore but its earnings per share grew at a lower rate of 78%, due to an increase in its equity capital. The big move that investors are keeping an eye on are its acquisition plans. The firm is seeking shareholder approval to raise up to Rs3,000 crore, which is expected to be used for a big acquisition. Speculation is that it will buy all or part of Sara Lee’s global insecticides, shoecare and non-European cleaning products. That may have made investors nervous as a large acquisition typically is a strain on profitability and on return on capital in the medium term. At the moment, GCPL scores high on these counts. That could explain why its share price has been lagging the sector index, and may do so till the acquisition is announced.

Graphic by Yogesh Kumar/Mint

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