Home / Markets / Mark To Market /  Why Godrej Consumer Products' shares are down post Q2 update

Godrej Consumer Products Ltd’s (GCPL) shares fell by about 5% in Thursday’s morning trade on the National Stock Exchange. This is on a day when the broader stock markets were in the positive zone.

Investors in the GCPL stock are visibly upset with the company’s update for the September quarter (Q2FY23) post market hours on Tuesday. Markets were closed on Wednesday owing the festival of Dussehra.

The company has said it will likely put up a weak show on the volume and margin front in Q2 roughly in line with the trend seen in Q1. In the India business, GCPL expects volume to drop by mid-single digit in Q2 with the three-year volume compound annual growth rate (CAGR) at low single-digit. This compares to mid-single digit three-year volume CAGR in Q1. The demand environment in the rural markets continued to remain subdued last quarter.

Further, the Indonesia business showed no signs of respite due to the weak performance in the hygiene portfolio against the backdrop of last year’s high base due to covid. GCPL sees constant currency sales to drop by early double digit. But excluding hygiene, sales growth is likely to grow by high single-digit. In Q1, Indonesia revenues fell by 12% on constant currency basis.

However, there are some bright spots. The GAUM (Godrej Africa, USA, and Middle East) segment would maintain the Q1 momentum and is likely to see low-teens constant currency sales growth.

Overall, in Q2, GCPL expects to clock higher than mid-single digit sales growth. In Q1, consolidated sales had risen by 8% year-on-year with the three-year CAGR at 10%.

Further, Ebitda in Q2 is expected to drop in the mid-teens given the consumption of elevated input costs during the quarter, higher marketing investments and subdued performance in Indonesia. Ebitda is earnings before interest, tax, depreciation and amortization.

Dolat Capital Market Pvt. Ltd expects GCPL to report about 7-8% revenue growth and a sequential drop in Ebitda margin in Q2. In Q1, the measure stood at 15.3%.

To be sure, the situation is likely to improve going ahead as the benefits from the fall in prices of palm oil and crude oil would flow through. Moreover, the demand scenario is expected to get better in the second half of FY23 with the easing of inflationary pressures.

“With investments by the new CEO being focused on boosting growth in the high margin, high-return on capital employed domestic business, the company’s medium-term earnings growth outlook is strong," said analysts at Motilal Oswal Financial Services in a report on 5 October.

As things stand, shares of GCPL are up by 29% from their 52-week lows seen in March.

ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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