Godrej Consumer Products share price plunges 10% after weak mid-Q3 update; Should you buy the FMCG stock? | Stock Market News

Godrej Consumer Products share price plunged 10% in early trade on Monday after the FMCG company reported weak mid-quarter business update, highlighting demand headwinds. Godrej Consumer Products shares declined as much as 10% to ₹1,112.05 apiece on the BSE.

“The demand conditions in India have been subdued for the past few months which is evident in FMCG market growth. Despite the demand conditions, GCPL has over the past six quarters consistently delivered an average organic UVG of ~7% on the back of category development supported by innovations and media investments,” Godrej Consumer Products said in its mid-Q3 business update.

The surge in palm oil and derivatives prices to the extent of a YoY increase of 20-30% has impacted the soaps category, which represents 1/3rd of Godrej Consumer Products’ standalone business revenue.

To partly offset the cost increases, the company said it has taken price increases, reduced grammage of key packs and reduced various trade schemes.

“Such pricing actions typically have minimal impact on category consumption but do result in reduced inventory across wholesale and household pantry. Historical patterns indicate a normalization in volume growth following price stabilization, which we anticipate occurring in the next few months,” the company said.

Moreover, the company also highlighted that unsupportive weather conditions have impacted the growth in its Home Insecticides segment, which contributes to 1/3rd of its standalone business.

“The rest of the portfolio is demonstrating robust performance and expected to deliver double digit UVG. However, given the significant contribution of Soaps and HI to the overall business mix, the Standalone business is expected to report around flattish UVG and around mid-single digit sales growth in this quarter,” Godrej Consumer Products said.

The current inflationary environment has created pressure on the margins and the company anticipates a temporary downward breach of the normative margins this quarter.

International Business

Godrej Consumer Products expects its Indonesia business to deliver continued superior performance with mid-single digit volume growth and high single digit sales growth.

In line with its earlier guidance, the GAUM (Godrej Africa, USA, and Middle East) organic business is expected to see volume decline due to reduction in trade stocks and portfolio simplification.

“The effects of these actions would be largely completed in Q3 FY 25. However, we continue to do well on our profitability journey, and this is likely to be the fourth consecutive quarter of healthy EBITDA margins for GAUM,” it said.

These are exceptional situations in Standalone business that the management believes are transitionary and 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 company added.

What analysts say?

Factoring headwinds in Soaps and Home Insecticides during the quarter, Antique Stock Broking has cut its earnings estimates by 6%/ 6%/ 6% for FY25/ FY26/ FY27. It believes this weakness is transitionary in nature and the company should be able to recover its performance.

The brokerage firm expects Godrej Consumer Products to deliver sales/ earnings CAGR of 9%/ 15% over FY24–27E driven by strong performance in Home Insecticides in India (product innovation) and improving profitability in GAUM business (post restructuring).

Antique Stock Broking maintained a ‘Buy’ recommendation on Godrej Consumer Products shares and cut the target price to ₹1,512 per share from ₹1,605 earlier.

Global brokerage JPMorgan maintained an ‘Overweight’ rating on Godrej Consumer Products shares with a target price of ₹1,410 apiece. It believes the company’s business update shows higher than anticipated revenue / earnings risk which are likely to further weigh on the share price performance in the short term.

It expects price hikes would keep revenue growth at mid single-digit levels.

At 9:40 AM, Godrej Consumer Products shares were trading 9.20% lower at ₹1,121.95 apiece on the BSE.

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 making any investment decisions.