Buy sell Godrej Consumer to share
Godrej Consumer Products Ltd., one of the leading players in household, air care and air products in emerging markets, expects its India business volume to decline by mid-single digits in the September quarter on “soft trends” in the domestic industry FMCG.
The India business contributes nearly 60 percent to the company’s total profit and more than 80 percent to the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). As a result, the company expects a mid-year drop in operating profit. He cited the use of expensive materials, significant upfront investment in marketing to drive category development and poor performance in Indonesia behind the warning.
Excluding the African region, Indonesia is GCPL’s second largest single market by country. The company expects the Indonesian company to report an early double-digit decline in constant currency sales due to a drop in demand for hygiene products following Covid-19.
However, on the sales front, the company expects high single-digit sales growth in the quarter, led by the personal care and home care businesses. It also expects continued current sales growth in the high thirties for its Latin American business.
The company is also confident of a recovery in consumption and an increase in gross margins due to a significant correction in commodities such as palm oil derivatives and crude oil. He expects sales growth both in Indonesia (without hygiene) and in the GAUM business (Godrej Africa, Middle East, USA).
Despite management’s weak commentary, Goldman Sachs sees Godrej Consumer as a strong upside candidate as the Indian home care company’s growth improves. The company is also witnessing initial signs of recovery in business in Indonesia. It expects lower input costs to help margins and sustained double-digit growth in Africa business due to the company’s distribution initiatives.
Shares of Godrej Consumer have fallen 7 percent this year and have recovered more than 20 percent from their 52-week high.
First published: IST