shares of Godrej Consumer Products Limited, (GCPL) June quarter (Q1 FY23) results have not changed much since they were announced during market hours on Wednesday. The company announced its earnings call on Thursday, the comments of which also did not please investors much.
GCPL continued its trajectory of weak performance in its key Indonesia market and expects the situation to improve only from Q3FY23, on the back of an improvement in the macro situation there. In addition, the company commented that its strong market position and media investments, resulting in share gains in Indonesia, and its determination to narrow down the business pipeline will help drive performance.
While higher commodity costs weighed on margins in the first quarter, higher marketing investments exacerbated the decline in EBITDA (earnings before interest, taxes, depreciation and amortization) levels in Indonesia. Ebitda margin fell 810 basis points year-on-year (year-on-year) to 15.3%. One basis point is 0.01%.
Higher media spend also impacted Ebitda margins in Africa, the Americas and the Middle East as it declined 160 bps annually to 8.3%. However, the pace of sales growth in constant currency terms was maintained at 12%. GCPL aims to strengthen governance and simplify business structure in this segment. And with that, it expects to reach double-digit EBITDA margin by 2025. According to the company a compatible mix will also aid in this endeavour.
The bright spot in the Q1 results was the personal care segment in India business as both personal wash and hair color saw good performance. But the home care segment posted a 4% year-on-year decline in sales as household pesticides were hit by higher base and weak weather. However, on a two-year compound annual growth rate (CAGR) basis, sales in the home care segment grew by 8%.
Going forward, the company reiterated its FY23 guidance of double-digit growth in sales with low to mid-single-digit volume growth. Margins are expected to improve from the second half on account of easing inflationary pressures. GCPL continues to focus on the growth of the category and has scheduled several initiatives for the same in Q2.
“Category Growth Results (GCPL) have become a key marker for stock performance. In household insecticides, new infusions and continued flexibility in the non-mosquito portfolio are other major positives. Confidence is high on the success in personal washing (the new format) and we are confident that GCPL can play a bigger role in clothing care as well,” analysts at ICICI Securities said in a report on August 4.
The company’s shares have lost around 12% so far in the calendar year 2022, while the Nifty FMCG index has gained 14%.
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