Home >Markets >Mark To Market >Godrej Consumer’s Q3 results aren’t exciting enough for investors

Godrej Consumer Products Ltd’s (GCPL) earnings for the December quarter are just about in line with Street estimates. Consolidated reported net profit stood at 502 crore, similar to what a Bloomberg poll had estimated.

The company’s total operating revenues increased by 10% year-on-year to 3,055 crore. This is also the second consecutive double-digit revenue growth for GCPL. Even so, its performance in Indonesia has been soft in Q3 and that’s a disappointment, said analysts. Revenues from Indonesia were flat y-o-y and declined by 2% in constant currency terms. The performance there was impacted by adverse macroeconomic factors; gradual recovery in air fresheners (discretionary category) and higher competitive intensity in wet wipes.

Steady growth
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Steady growth

“India household insecticides (HI) growth remained tepid and was the other disappointment from the result—the illegal incense sticks menace has not entirely gone away yet, it seems; this caused GCPL’s performance to lag its domestic peers like Marico and Dabur India," said analysts from JM Financial Institutional Securities Ltd in a report on 8 February. India HI sales growth was somewhat tepid at 7%, even as it improved from a 4% growth in the September quarter. India soaps sales growth was decent at 15% and growth in hair colours stood at 14%, indicating a smart recovery from a 5% decline seen in the September quarter.

Further, Africa’s (Africa, US and the Middle East) performance was notable, helped by strong sales growth in South and West Africa. “To us, the key result highlight was the strong delivery in Africa - 17% constant currency revenue growth on a soft but not all that weak a base," said JM Financial analysts.

Overall, GCPL managed to keep its earnings before interest, tax, depreciation and amortization (Ebitda) margin flattish y-o-y. This is despite a decline in gross profit margins owing to input cost pressures.

Meanwhile, after touching a 52-week high on 20 January, the GCPL stock has declined by 7% so far. The shares are now 2% lower than the pre-covid highs seen in January 2020. Based on Bloomberg data, the stock trades at nearly 40 times estimated earnings for financial year 2022.

While valuations aren’t too demanding, going ahead, a sustained improvement in performance may help improve sentiments for the stock.

Analysts from Kotak Institutional Equities said: “The concerns in HI don’t appear to be over yet. While traction at the premium end (electric, aerosols) is decent, GCPL continues to struggle in the mass segment. On the international front, turnaround in the Africa business has been good amidst low expectations. Indonesia business, which was seeing strong momentum till some back, has slowed down due to weak macro and higher competitive intensity." As such, the progress on a turnaround in Africa remains a key monitorable for the stock.

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