Godrej Consumer Products shares fall 3% to 6-month low after company flags profit drop in Q2

Shares of Godrej Consumer Products Ltd (GCPL), a leading FMCG player, came under selling pressure in Wednesday’s trading session, October 8, slipping 3% to a six-month low of ₹1,120 apiece after the company indicated that its second-quarter profitability is likely to decline due to a temporary slowdown in sales following GST rate cuts.

In its Q2 business update, the company said that the recent GST rate reductions have led to short-term disruptions across trade channels, as distributors and retailers focused on liquidating old inventories before restocking. This has delayed the flow of new orders and temporarily deferred consumer purchases, impacting both growth and margins.

Consequently, the company expects its standalone business to deliver mid-single-digit value growth, supported by low-single-digit underlying volume growth (UVG). At a consolidated level, GCPL anticipates mid-single-digit revenue growth in INR terms. However, the company noted that the GST transition is expected to have a short-term impact on profitability, with EBITDA likely to decline for the quarter.

Within its categories, the Home Care portfolio continues to show strong momentum and is likely to post high-single-digit value growth, while the Personal Care segment is expected to record a low-single-digit decline, largely driven by weakness in the soaps category. The company believes this is a transitory adjustment and remains confident in the long-term benefits of the reforms.

In the international markets, GCPL said its Indonesia business continues to face heightened competitive pricing pressures across key categories, which is expected to result in a low-single-digit decline in value growth, though with slightly positive UVG.

Meanwhile, the Godrej Africa, USA, and Middle East (GAUM) division is set to deliver its third consecutive quarter of strong topline growth, with expectations of double-digit value and volume growth.

Besides GCPL, other FMCG majors, including Hindustan Unilever and Dabur, flagged short-term sales disruptions in September, ahead of the government's GST cuts, as retailers rushed to liquidate existing higher-priced inventory.

Stock remained under pressure in the last 3 months

The company’s shares have been under pressure since hitting a new peak in September last year. Although the stock showed some resilience in March and April, it failed to sustain the same momentum in the subsequent months and resumed its losing streak, which has now extended into October.

After ending the last two months in the red, with a cumulative loss of 7.3%, the stock has declined another 3% so far in the current month. From its all-time high of ₹1,541, the stock is now down by 27.31%.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.