Godrej Consumer Products Ltd’s (GCPL’s) September quarter results are not spectacular on the revenue front to begin with. Nonetheless, there are some encouraging signs. For instance, the India business volume growth came in at 7%. This is an improvement from 5% in the June quarter. Prior to that, the measure stood at 1% for two quarters in a row.
The company said its September quarter volume growth was led by new product launches, effective marketing campaigns and consumer offers. Even as volume growth is better than some analysts’ estimates, not everyone is thrilled. “Higher consumer promotions led to a 6% decline in effective realizations for domestic business," says Nitin Gupta, analyst at SBICAP Securities Ltd.
Within the India business, GCPL’s household insecticides (HI) segment, which accounts for a big share of domestic revenue, reported higher than mid-single digit volume growth, resulting in a 4% value growth. On the other hand, soaps value growth declined by 4%. On the international business, GCPL’s Indonesia business performed well for the September quarter. “Africa had a mixed performance with weak sales growth and strong operating profits expansion. Growth was impacted by adverse macro-economic conditions in West Africa," said the company.
Overall, GCPL’s reported consolidated revenue declined by 1% year-on-year to ₹2,630 crore. However, a faster rate of decline in raw material costs and advertisement and publicity expenses, helped profit margin performance. Earnings before interest, taxes, depreciation and amortization (Ebitda) margin expanded by about 350 basis points to 21.7%. One basis point is one-hundredth of a percentage point.
GCPL’s shares closed about 3% higher on Wednesday, when the company announced its September quarter results.
Hereon, in the HI segment, investors should watch the performance of the recently launched Goodknight Gold Flash in the coming days. Sure, it will be helpful if the international business shows a sustained improvement. “Hiccups in the international business have dragged overall performance in the last few years; with corrective measures in place, we await stability in performance," points out SBICAP Securities Ltd in a report on 6 November. “Considering H1 FY20 topline growth, we lower our topline expectation by 3% each year over FY20-22. But with better-than-expected margin delivery in the international business, we have revised earnings up by 2-5% over FY20-22E," adds the broker. Meanwhile, GCPL shares have appreciated sharply in recent months, and could well make meaningful gains limited hereon. From its annual closing low of ₹582.90 on 4 September, the GCPL stock has increased as much as 27%. Currently, the stock trades at almost 40 times estimated earnings for fiscal year 2021, according to Bloomberg data.