Q1 results review: Godrej Consumer falls 4.5% as revenue declines in Q1; should you buy or sell?

Shares of Godrej Consumer Products Limited (GCPL) fell 4.5 percent in intraday trading on Thursday, August 8, following the company's revenue decline for the quarter ending June 2024 (Q1FY25). Despite this, GCPL reported a consolidated net profit of ₹450.69 crore for the fiscal first quarter, marking a 41 percent increase from ₹319 crore in the same period last year.

The company's revenue from operations decreased by 3.4 percent, totaling ₹3,331.58 crore compared to ₹3,449 crore in the previous year. Earnings before interest, tax, depreciation, and amortization (EBITDA) for the quarter were ₹724.5 crore, reflecting a 12.7 percent year-on-year growth. The EBITDA margin improved by 200 basis points to 21.8 percent.

GCPL announced its entry into the pet care market, planning to invest ₹500 crore over the next five years. The company sees significant potential in the pet food sector, which is valued at approximately ₹500 crore and is expected to experience strong double-digit growth in the coming decades. Additionally, GCPL declared an interim dividend of ₹5 per share, with the record date set for August 16.

Sudhir Sitapati, Managing Director and CEO of GCPL, highlighted a strong start to the year with healthy volume growth in key markets such as India and Indonesia. In India, the company achieved an organic volume growth of 8 percent and overall volume growth of 10 percent. Sitapati noted improvements in EBITDA margin and emphasised the company's commitment to driving volume-led growth, investing in brands, and enhancing profitability. He also mentioned ongoing efforts to reduce wasted costs and focus on sustainable volume growth across the portfolio.

Stock price trend

The stock of Godrej Consumer Products Limited (GCPL) declined by as much as 4.5 percent to ₹1,433 on Thursday, moving further away from its record high of ₹1,524.70 reached on July 23, 2024. It remains 6 percent short of this peak. The stock has seen a significant recovery, advancing over 49 percent from its 52-week low of ₹959.55 recorded on October 26, 2023.

Over the past year, the stock has risen by 49 percent and it has gained nearly 27 percent year-to-date in 2024, reflecting positive returns in six out of the eight months so far. In August, the stock has added over 1 percent, marking a continuation of gains for the fourth consecutive month. The stock rose 4.7 percent in July, 8.7 percent in June, and 3.7 percent in May. In contrast, it fell 2.5 percent in April and 0.5 percent in March. Additionally, it gained 8.2 percent in February and 2.7 percent in January 2024.

What brokerages make of the earnings

GCPL reported its earnings for Q1FY25, and while the results showed a mixed performance, brokerages have offered varied views on the company's prospects. Despite a revenue decline, analysts are optimistic about the company's future growth potential, driven by strategic initiatives and market opportunities.

Motilal Oswal

The brokerage has maintained its ‘buy’ call on the stock with a target price of ₹1,700, implying an upside of almost 19 percent.

"GCPL has seen improved sales growth in its India business in recent years. It has delivered industry-leading volume growth in the India business over 9MFY24, and it is likely to record a double-digit EPS growth over FY24-26E. The implementation of disruptive innovations, the introduction of access packs, expansion into new growth categories and increased advertising expenditure are anticipated to contribute to a consistently robust growth trajectory in this high-margin and high-ROCE domestic business," it said. MOSL has broadly retained its FY24/FY25 EPS estimates.

The brokerage further added that the company is consistently working toward expanding TAM for the India business, along with product innovation to drive frequency. Besides, there has been a consistent effort to fix the gaps in profitability/growth for its international business.

InCred Capital

The brokerage has maintained an "add" rating on the stock and raised its target price to ₹1,665 from ₹1,455, suggesting a potential upside of 16 percent. It noted that GCPL's strategies for expanding its Total Addressable Market (TAM), premiumization, and business simplification are promising. For Q1FY25, GCPL reported a 7.9 percent organic domestic value growth and an 8 percent volume growth, while Indonesia saw a 7 percent increase in volume. Despite muted growth, the International Business Division's (IBD) margin improved. The domestic EBITDA margin was 24.7 percent, down from 26.7 percent in Q4FY24 and 25 percent in Q1FY24. Domestic and consolidated EBITDA grew by 12.5 percent and 12.7 percent year-on-year, respectively. The brokerage praised GCPL's focus on simplifying its business and enhancing margins as positive developments.

JM Financial

The brokerage has maintained a "buy" call on the stock and raised its target price to ₹1,580, suggesting a potential upside of over 10 percent.

The brokerage described GCPL’s 1QFY25 earnings report as a mixed bag. While operating performance largely met expectations, revenue growth fell short, marking the first decline in the topline in sixteen quarters due to weak international revenue. Overall operating profits were in line, bolstered by strong gross profit margin expansion and effective cost management, particularly in the international business, where margin improvements were observed across various regions.

Moving forward, the focus will be on driving volume-led growth, with expectations for high-single-digit volume increases, it stated, adding that pricing is anticipated to turn positive, and steady international profitability should support overall earnings growth. The company's planned entry into the pet care market by late FY26 presents a new growth avenue. As per the brokerage, key factors to watch include the performance of new high-impact launches, soap sales, and recovery in Africa. The brokerage noted that the execution machinery implemented in FY24 was effective, maintaining high confidence in the CEO’s strategy. It advised using any sharp corrections as an opportunity to add to holdings.

Overall, brokerages have expressed optimism about GCPL’s future, despite the mixed results for Q1FY25. Analysts highlight the company's strategic focus on innovation, market expansion, and margin improvement as key drivers for future growth. While revenue challenges in international markets were noted, GCPL's robust domestic performance and strategic initiatives are expected to support long-term earnings growth. Investors are advised to watch for developments in the company's high-impact launches and international market recovery, with several brokerages suggesting that any stock corrections could present buying opportunities.

Disclaimer: 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 taking any investment decisions.