Godrej Consumer Share Price Drops 9.36%; Focuses on Long-Term Value Amid Q3 FY25 Challenges

Godrej Consumer Products Limited (GCPL) reported a challenging market environment in Q3 FY25, with demand conditions in India remaining subdued. The broader FMCG market has witnessed slower growth, and this has had an impact on GCPL’s performance.

However, despite these headwinds, GCPL has been able to maintain an average organic unit volume growth (UVG) of ~7% over the past six quarters. This achievement is driven by continued investments in innovation, category development, and media campaigns that have supported the company’s resilience in a difficult market.

On December 9, 2024, Godrej Consumer share price opened at ₹1,169.95, down from its previous close of ₹1,235.45. At 9:46 AM, the share price of Godrej Consumer Products was trading at ₹1,119.85, down by 9.36% on the NSE.

Soaps Category Hit by Rising Palm Oil Prices

One of the major challenges GCPL faced was the surge in palm oil and derivative prices, which have increased by 20-30% year-over-year. The soaps category, which constitutes about one-third of the company’s standalone revenue, has been significantly affected by these price hikes. In response, GCPL has implemented several strategies, including price increases, reducing the grammage of key soap packs, and cutting back on trade schemes. While such actions typically have minimal effects on consumption, they do result in reduced inventory at both wholesale and household levels. The company expects that once price stabilisation occurs, volume growth in this category will normalise in the coming months.

Weather Disruptions Impact Home Insecticides

In addition to cost pressures, GCPL’s Home Insecticides (HI) segment has faced setbacks due to unseasonal weather conditions. The delayed onset of winter in North India and the impact of a cyclone in South India have hampered demand for home insecticides, contributing to slower-than-expected growth in this category. Given that HI represents about one-third of GCPL’s standalone business, this has further weighed on the company’s overall performance.

Strength in Other Segments

While soaps and home insecticides have faced challenges, other segments in GCPL’s portfolio have demonstrated strong performance. The company expects double-digit UVG in these categories, helping to offset the weaknesses in soaps and HI. Despite the ongoing pressure in these areas, GCPL remains committed to its long-term strategy, continuing to focus on rural distribution, media investments, and innovative product offerings to drive future growth.

Temporary Margin Compression

Historically, GCPL has maintained an EBITDA margin range of 24-27%. However, in Q3 FY24, the company achieved an exceptional margin of 29.7%, which was largely driven by favorable commodity prices. In Q3 FY25, the company expects a temporary dip in its margins due to the inflationary environment and the price hikes taken to manage rising raw material costs. While this may result in a margin below the normative range, GCPL remains focused on its strategic investments and believes these pressures will be temporary.

International Operations Show Strong Growth

GCPL’s international business continues to deliver strong results. The company’s operations in Indonesia are expected to maintain solid performance with mid-single-digit volume growth and high-single-digit sales growth. In contrast, the company’s Godrej Africa, USA, and Middle East (GAUM) segment is experiencing a volume decline, primarily due to a reduction in trade stocks and a portfolio simplification process. However, this will likely be the final quarter of these adjustments, and GAUM is expected to report healthy EBITDA margins for the fourth consecutive quarter.

Focus on Long-Term Growth Despite Short-Term Challenges

While the challenges in the standalone business are expected to continue in the short term, GCPL’s management remains confident that these issues are transitional rather than structural. The company is committed to navigating these challenges effectively while ensuring that its strategic investments, particularly in media and rural distribution, are maintained to fuel long-term growth.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.