Godrej Consumer shares sink 10%, HUL 4%; why are FMCG stocks falling today?

Godrej Consumer believes that due to an increase in soap prices, unseasonal rainfall, and slowdown in sales of its home insecticides (HI) segment a 'flattish' underlying volume growth

The National Stock Exchange (NSE) Nifty FMCG Index was down over 2 per cent in Monday’s trade, dragged by Godrej Consumer Products (GCPL), which lost 10.8 per cent and recorded a day’s low at Rs 1,101.65 per share on NSE, before closing with a net decline of 8.82 per cent at Rs 1,126.50. The selling pressure in the stock came after the soap-to-home insecticide maker said it expects a flat underlying volume growth and mid-single-digit sales growth in the domestic market in the October-December quarter (Q3) of 2024-25 (FY25). This impacted other fast-moving consumer goods (FMCG) stocks too.

 

At close, the Nifty FMCG index was down 2.22 per cent at 56,460.6. In comparison, the Nifty 50 was down 0.24 per cent at 24,619. On the FMCG index, 14 stocks declined, and one advanced. Among others, Tata Consumer Products shares were down over 4.13 per cent, while Dabur, Marico, and Hindustan Unilever shares were down over 3 per cent. Colgate-Palmolive fell 2.87 per cent.

 

 

According to its filing, GCPL believes that due to an increase in soap prices, unseasonal rainfall, and a slowdown in sales of its home insecticide segment, flat underlying volume growth and mid-single-digit sales growth in the domestic market are expected in Q3.

 

Both segments jointly contribute to two-thirds of GCPL’s standalone revenue, which is primarily income from operations in the domestic market. 

 

However, the rest of the portfolio is demonstrating good performance and is expected to deliver double-digit underlying volume growth, GCPL said in an update on business conditions and quarterly performance to the exchanges.

 

“The demand conditions in India have been subdued for the past few months, which is evident in FMCG market growth,” it said.

 

A surge in palm oil and derivatives prices, with a year-on-year increase of 20-30 per cent, has impacted the soap category, which represents one-third of GCPL’s standalone business revenue.

 

“To partly offset the cost increases, we have taken price increases, reduced the grammage of key packs, and reduced various trade schemes," said the Godrej Industries group FMCG arm.

 

Such pricing actions typically have minimal impact on category consumption but result in reduced inventory across wholesale and household pantries, it said.

 

The company expects volume growth normalisation following price stabilisation over the next few months, in line with historical patterns.

 

Moreover, delayed winters in the North and cyclones in South India have slowed down sales in the home insecticide segment, which also contributes one-third to the company’s standalone business.

 

The company management believes these are “exceptional situations in standalone business” and are transitory, not structural.

 

“Hence, the management remains focused on navigating these near-term challenges while maintaining strategic investments for long-term growth, as these negative trends are likely to persist for a few months,” the filing added.

 

Among brokerages, JM Financial has maintained a ‘buy’ call on GCPL but has cut the target price to Rs 1,415 per share from Rs 1,500.

 

The brokerage has also cut its FY25 through 2026-27 (FY27) earnings estimates by 4-7 per cent to factor in weak margins in Q3. JM Financial believes current challenges are more transient in nature and the stock is likely to remain lacklustre until signs of improvement become visible.

 

Kotak Institutional Equities, too, has maintained an ‘add’ rating but has cut the fair value to Rs 1,365 from Rs 1,500 per share. Analysts at Kotak have reduced their FY25-27 estimated earnings per share by 4 per cent and trimmed their revenue forecast by 1.5-2 per cent. Further, they have cut the earnings before interest, tax, depreciation, and amortisation margins by 50-60 basis points.

 

They have also lowered the valuation due to a challenging operating environment and weather-led demand volatility in the home insecticide category, which could weigh on growth regardless of the efficacy of the renofluthrin molecule.