Home / Markets / Mark To Market /  Godrej Consumer’s Q4 revenues in-line, but margins miss estimates

MUMBAI : Godrej Consumer Products Ltd’s (GCPL's) shares jumped over 20% on the National Stock Exchange on Wednesday, a day when the benchmark Nifty 50 index fell by 1%.

On Tuesday after market hours, GCPL said it appointed Sudhir Sitapati as managing director and chief executive officer for five years effective 18 October. The announcement cheered investors, as Sitapati’s brings his rich experience of 22 years at industry leader Hindustan Unilever Ltd.

Read more | Why has the Godrej Consumer scrip jumped 20%?

GCPL also released its March quarter (Q4FY21) results, which have met analysts’ expectations on the revenue front. Consolidated operating revenues have increased by nearly 27% year-on-year (y-o-y) to around 2,706 crore. True, a favourable base quarter would have helped performance to that extent. For perspective: revenues had declined by 12% y-o-y in Q4FY20.

Last quarter, reported sales growth from India; Africa, USA and Middle East; and Latin America and Saarc regions was robust at 35%, 30% and 30%, respectively. Growth in Indonesia was much slower at 5%.

Commenting on the India business performance, analysts from JM Financial Institutional Securities Ltd said, “Two-year CAGR works out to around 5%, which is quite similar to past two quarters’ trend." CAGR is short for compound annual growth rate. JM’s analysts point out in a report, “Domestic growth was led by soaps +41% (2-year CAGR of 4%) and household insecticides +34% (2-year CAGR of 6%). Hair-colours revenue is lower than two-year ago level—likely due to its relatively discretionary nature."

Consolidated earnings before interest, tax, depreciation, and amortization (Ebitda) margin in Q4FY21 shrank 259 basis points vis-à-vis December quarter. One basis point is one-hundredth of a percentage point. For perspective: Kotak Institutional Equities was expecting Ebitda margin to decline by 20 basis points sequentially. GCPL’s India business fell short on margin expectations on account of higher input costs. Higher staff costs and ad spends also weighed on margins.

Separately, the consistent momentum in GCPL’s Africa business is encouraging. The company said this was the third consecutive quarter of double-digit sales growth; 36% in constant currency.

Analysts from Emkay Global Financial Services Ltd said, “We expect Indonesia to see a gradual recovery, while benefits of portfolio and distribution expansion in Africa should drive better growth and profitability in FY22, in our view." Note that the Africa business has been area of concern for investors in the recent past.

Emkay’s analysts added in a report on 11 May, “The stock’s recent underperformance and the hiring of Sudhir Sitapati (ex HUL) as CEO may increase optimism and drive near-term upsides. We, however, await more visible improvement in growth."

Even so, investors are gung-ho on Sitapati’s appointment. Post the sharp appreciation of more than 20% in the GCPL stock on 12 May, the shares trade at around 47 times estimated earnings for financial year 2022, based on Bloomberg data.

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