Godrej Consumer Q1 Update: Margin Seen To Narrow But ‘Worst Seems To Be Over’

Godrej Consumer Products Ltd. expects its operating margin to narrow and volumes to decline in the quarter ended June because of short-term challenges such as continued “unprecedented” global commodity inflation and the performance of its Indonesia business.

“In India, we expect to deliver early double-digit sales growth on a high base. Our three-year CAGR remains robust and in early double-digits,” the maker of Good Knight mosquito repellant said in its quarterly business update released on the stock exchanges. “We would have mid-single digit volumes drop on a high base, with a three-year volume CAGR close to mid-single digits.”

Successive price increases, it said, impacted demand in rural markets more than urban areas.

The company expects lower year-on-year Ebitda margin during the first quarter. “This is due to input inflation, upfront marketing investments to drive category development and weak performance in Indonesia.”

The company, however, said the worst seems to be over due to the recent correction in commodity prices and the “encouraging” forecast of a good monsoon.

“With inflationary pressures abating and significant correction in palm oil derivatives and crude oil, which are some of our key raw materials, we do expect recovery in consumption and margins in the upcoming quarters,” it said. “We remain competitive given the relatively non-discretionary mass pricing of our portfolio.”

Key Highlights

• Within categories, personal care sustained its strong double-digit growth trajectory, with two-year CAGR also in double-digits, led by personal wash and hair colours.

• Home care witnessed a low single-digit sales drop on a high base. But the two-year CAGR remained at high single-digit.

• At a consolidated level, it reported high single-digit sales growth and a three-year CAGR in double-digits.

In Indonesia, with hygiene performance waning after the Covid-19 and a large hygiene comparator in base, the company expects a “high single-digit” sales decline.

“The sales performance, excluding hygiene, was largely flat. While reported sales were weak, we continued to reduce stocks with channel partners, resulting in positive sales growth on sellouts, excluding hygiene, during the quarter,” the company said.

The maker of household insecticides, however, said it has been “putting building blocks in place to drive category development and general trade distribution to ensure gradual recovery in the medium term”.

In Godrej Africa, the U.S., and the Middle East, the company said it continued its growth momentum across most of the countries of operations.

“We expect to deliver double-digit sales growth, with a continued focus on driving sustainable, profitable sales growth,” the company said. It also expects a constant currency sales growth in the high teens in Latin America.

Consumer goods peers such as Marico Ltd. and Dabur India Ltd., too, said volumes and margins would shrink in the first quarter as consumers have been downtrading across products on account of inflationary pressures.