Marico, Godrej Consumer Q4 updates paint gloomy consumption picture | Mint
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Business News/ Markets / Mark To Market/  Marico, Godrej Consumer Q4 updates paint gloomy consumption picture
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Marico, Godrej Consumer Q4 updates paint gloomy consumption picture

Going ahead, easing of supply-chain issues owing to the lockdown and demand recovery remain crucial for the FMCG sector as a whole
  • To be sure, demand for discretionary products may take longer to revive
  • Marico, on the other hand, said its India business posted low single-digit volume fall in Q4. (Pradeep Gaur/Mint)Premium
    Marico, on the other hand, said its India business posted low single-digit volume fall in Q4. (Pradeep Gaur/Mint)

    Even before the fight against covid-19 intensified in the March quarter leading to a lockdown in India, many fast-moving consumer goods (FMCG) firms were facing demand blues. Marico Ltd’s and Godrej Consumer Products Ltd’s (GCPL’s) Q4 FY20 updates show that the lockdown has made things worse. The updates also point to a stark difference in the performance of the two companies, which is likely to do with their different product portfolios.

    Of the two firms, GCPL’s commentary is far weaker than expectations. The company said domestic business revenue in Q4 FY20 would report a decline of high teens. Analysts had anticipated the decline in domestic revenue to be in the mid-single-digit territory.

    Lower  trajectory.
    View Full Image
    Lower trajectory.

    Marico, on the other hand, said its India business posted low single-digit volume fall in Q4. Its overall performance was boosted by a surge in sales of its edible oils portfolio, which accounts for 18% of domestic revenue.

    “For GCPL, March is a key month for placement given the onset of season for soaps and household insecticides," said Nitin Gupta, analyst at SBICAP Securities Ltd. As such, the disruption in trade last month meant that its performance was hit more than Marico’s.

    “Marico has an all-season offering and after a price cut in the Parachute portfolio, there was surge in trade inventory. Besides, Marico’s food offerings including edible oil have seen strong surge in demand in the wake of the national lockdown," added Gupta.

    Further, with salons shut down, GCPL’s hair colours portfolio has also been adversely hit.

    The saving grace for GCPL was that the international business is expected to record around mid-single-digit sales decline in rupee terms for Q4 FY20.

    Note, in Q3, Marico’s India volume had declined by 1%. As such, the impact of the lockdown doesn’t seem very high. But again, this may be because of a one-off surge in trade inventory and the stocking up of edible oils.

    Marico added that the decline in revenue, coupled with an unfavourable mix in the India business, will translate into a modest decline in earnings before interest, tax, depreciation and amortization in Q4 FY20 on a year-on-year basis.

    Going ahead, easing of supply-chain issues owing to the lockdown and demand recovery remain crucial for the FMCG sector as a whole. To be sure, demand for discretionary products may take longer to revive.

    Meanwhile, shares of both Marico and GCPL have recovered well by 27-40% from their 52-week trading lows seen on 23 March on the National Stock Exchange. However, year to date, these stocks are still trading about 13% lower.

    According to Bloomberg, Marico and GCPL stocks trade at 33 and 34 times their respective earnings estimates for FY21, more than double the 15 times valuation of the broader market.

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    ABOUT THE AUTHOR
    Pallavi Pengonda
    Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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    Published: 12 Apr 2020, 10:26 PM IST
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