The best part about the Godrej Consumer Products Ltd (GCPL) stock is also the worst part. The stock has fallen a substantial 38% from its annual closing high on 31 August 2018, underperforming the Nifty 200 index.
Clearly, investors seem to be baking in a good portion of the pessimism into the share price. At the current market price of ₹603.55, the stock trades at 37 times FY20’s estimated earnings, relatively cheaper than some of its other peers in the consumer staples industry.
In that sense, the good news is that the downside for the GCPL stock could well be limited hereon. But, the not-so-good part is that analysts see fewer triggers going ahead, for the trend in the share price to reverse.
What’s more, the company’s June quarter results, announced on Thursday, were hardly anything to be excited about. Net profit without one-off items came in at ₹291 crore, falling short of Bloomberg’s consensus estimate of ₹315 crore. While the stock closed higher on Thursday, it’s worth noting that it was trading at a new 52-week low of ₹590.20 on the previous day.
GCPL’s net comparable consolidated revenues rose by just 2% year-on-year. In the domestic business, volume growth came in at 5%, on a high base in the year-ago quarter. The sustainability of volume growth remains to be seen, said an analyst who did not want to be named. As such, volume growth was in line with Street expectations.
The domestic household insecticides segment continued to be a pain point, declining by 4% in the June quarter, over the same period last year. A higher base effect and extended summer season weighed on this segment’s performance. Plus, there is competition from the unorganized sector to deal with. GCPL’s natural neem incense sticks would have partially helped mitigate the impact of products from the unorganized market. The company has now scaled up its neem incense sticks to six states as of July 2019. Further, the general slowdown in the industry, took a toll on the hair colour business, which remained soft with flat year-on-year growth.
Revenue growth in the international business was nothing to write home about, with constant currency sales growth at 9%, which is just about satisfactory.
As such, for sentiments to improve, a sustained recovery in consumption demand is necessary. In general, hopes of a better consumption environment are running low at the moment given the economic slowdown.