Improving outlook may drive further gains in Godrej Consumer Products

Godrej Consumer Products (GCPL) reported a three per cent year-on-year (Y-o-Y) decline in consolidated net revenue to Rs 3,330 crore, lower than consensus.

In constant currency terms (cc), revenue grew 11 per cent Y-o-Y. The India business clocked nine per cent Y-o-Y revenue growth with volume growth of 8 per cent Y-o-Y.

GCPL has delivered industry-leading volume growth in India and it may record double-digit earnings growth over FY24-26. The introduction of access packs, expansion into new categories and increased advertising are elements in the growth story.

GCPL is working to expand the Total Addressable Market (TAM) for India.

But overseas performance was hit by unfavourable currency movement. Indonesia revenue was up 3 per cent Y-o-Y (11 per cent in constant currency). The Godrej Africa Middle East and US or GAUM revenue was hurt by Naira devaluation and organic revenue declined 25 per cent (minus 10 per cent in constant currency).

GCPL aims to achieve high single-digit volume growth in FY25.

Under its Project Vistaar 2.0, the company looks to double outlets and triple village coverage in India. GCPL has gained market share in modern trade, e-commerce and rural, but it has lost some market share in urban general trade.

Consolidated sales declined 3 per cent, partially due to sale of a part of the Africa business. Organic sales declined 1 per cent due to the currency impact. Consolidated organic volume growth was 2 per cent while India volume growth was 8 per cent Y-o-Y.

The gross margin expanded 210 basis points Y-o-Y to 55.9 per cent, higher than expected.

Ad spend as percentage of sales increased 60 basis points Y-o-Y to 9.9 per cent, while other expenses declined 70 basis points Y-o-Y to 8.4 per cent.

The operating profit margin expanded by 200 basis points Y-o-Y to 21.8 per cent and operating profit grew 7 per cent Y-o-Y to Rs 730 crore while adjusted net profit grew 25 per cent Y-o-Y to Rs 470 crore.

Indonesia’s operating profit margin expanded by 400 basis points Y-o-Y to 23.3 per cent while Godrej Africa, US and Middle East (GAUM) margin expanded 660 basis points Y-o-Y to 14.4 per cent, led by gross margin expansion and mix improvement.

Latin America clocked seven per cent revenue growth with five per cent operating profit margin (up from one per cent Y-o-Y). The India gross margin contracted by 60 basis points Y-o-Y to 56.4 per cent while domestic operating profit margin remained flat Y-o-Y at 24.7 per cent and operating profit grew 8 per cent Y-o-Y to Rs 530 crore.

Godrej Pet Care (GPC), a subsidiary of GCPL, has entered the Rs 5000 crore pet care market in India, and expects double-digit growth potential. GCPL will invest Rs 500 crore in GPC over five years and expects it to become cash positive. Godrej Agrovet (GAVL), a group company, leads in animal feeds and it will be a manufacturing and R&D partner.

Management says India business will see pricing benefits from Q2FY25 onward. Volume growth is expected in high single digits with low double-digit revenue growth. The RCCL subsidiary acquired from Raymond’s will require further expenditure which has led to downgrade in FY25 operating profit guidance to Rs 150 crore for RCCL. Prior to acquisition, RCCL reported operating profit of Rs 60 crore.