After a soft Q4, Godrej Consumer shows signs of recovery in the new year1 min read . Updated: 07 Jul 2020, 10:06 AM IST
- Godrej Consumer expects close to mid-single digit volume-driven sales growth in the domestic biz in June quarter
- Overall, the company expects absolute consolidated sales to be marginally lower in rupee terms on a year-on-year basis
In the March quarter, Godrej Consumer Products Ltd (GCPL) was one of the worst hit fast-moving consumer goods (FMCG) firms. Its India business volume had declined as much as 15%, with the lockdown impacting sales. Plus, demand for products such as hair colour was hit, owing to its discretionary nature.
But the June quarter looks set to bring some comfort. In its quarterly update, GCPL said it expects close to mid-single-digit volume-driven sales growth in the domestic business. In 2019-20, it derived about 55% of its consolidated revenue from India. The household insecticide (HI) category performed well last quarter. However, demand for hair colour and air freshener was muted.
In the international business, GCPL expects close to mid-single-digit constant currency sales growth in Indonesia, led by strong demand in the HI category. In GAUM (Godrej Africa, US, Middle East), the sales decline is expected to be around 20% in constant currency terms. Considering the weakness in its international business, it expects absolute consolidated sales to be marginally lower year-on-year in rupee terms. Nonetheless, a meaningful appreciation in GCPL’s share price suggests investors are assuming things will get better. The GCPL stock is just about 9% away from its 52-week high seen in January on the NSE.
The stock has risen by about 31% since the Q4 results were announced in May. This is despite the fact that the results were weak even adjusted for the covid impact.
“Apart from the covid-19-led lockdown challenges, which is more of a short-term phenomenon, the loss of dominance in hair colour, the advent of unorganized incense stick players in HI and weak execution in the Africa business remain points of worry," analysts from Motilal Oswal Financial Services Ltd said in a report on 6 July.
“Domestic sales slowdown in recent years and continued inability to scale up margins and improve weak RoCEs in the international business have adversely affected GCPL’s pace of earnings growth," it added. RoCE is return on capital employed.
Against this backdrop, GCPL’s valuations look pricey. Based on Bloomberg data, the stock trades at almost 40 times estimated earnings for FY22.