Earnings Review
Palm oil costs hit Godrej Consumer; Africa, US ops muted
This story was originally published at 20:22 IST on 24 October 2024
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--Godrej Consumer hair colours volume grew in double digits in Jul-Sept
--Godrej Consumer:No material impact from change in soap formulations in mkt
--Godrej Consumer: Margin pressure in personal care to remain for few qtrs
--Godrej Consumer: Pricing growth in personal care to lag rise in input cost
--Godrej Consumer: Not to pass on entire palm oil cost rise to consumers
--Godrej Consumer: Personal care margin erosion likely to continue this year
--Godrej Consumer:Personal care ops margin down due to inflation in palm oil
--Godrej Consumer Jul-Sept Indonesia EBITDA margin 19.4%, up 140 bps on year
--Godrej Consumer Jul-Sept India personal care sales INR 11.8 bln, up 3% YoY
--Godrej Consumer Jul-Sept India home care sales INR 10.16 bln, up 12% on yr
--Godrej Consumer Jul-Sept standalone EBITDA flat on year
--Godrej Consumer:Consol organic underlying volume rose 5% on yr in Jul-Sept
--Godrej Consumer: Jul-Sept consol EBITDA margin at 20.8%, up 110 bps on year
--Godrej Consumer: Jul-Sept standalone EBITDA margin down 160 bps on year
--Godrej Consumer:Will recover margins via price increase, stabilising costs
--Godrej Consumer expects hit to EBITDA margin to last for short-term
--Godrej Consumer: EBITDA margin affected due to high inflation on palm oil
--Godrej Consumer: EBITDA margin in Jul-Sept at lower end of targeted band
--Godrej Consumer standalone EBITDA margin at 24.3% in Jul-Sept
--Godrej Consumer standalone EBITDA margin at 24.3%
--Godrej Consumer consol EBITDA up 8% on year in Jul-Sept
--Godrej Consumer: Sales volume in Indonesia up 7% on year in Jul-Sept
--Godrej Consumer: Sales volume in India up 7% in Jul-Sept
--Godrej Consumer Jul-Sept Indonesia revenue INR 5.14 bln vs INR 4.73 bln
--Godrej Consumer Jul-Sept India revenue INR 23.01 bln vs INR 21.68 bln
--Godrej Consumer Apr-Sept consol revenue INR 69.98 bln vs INR 70.51 bln
--Godrej Consumer Apr-Sept consol net profit INR 9.42 bln vs INR 7.52 bln
--Godrej Consumer to pay INR 5 per share interim dividend
--Godrej Consumer Jul-Sept consol revenue INR 36.66 bln vs INR 36.02 bln
--Godrej Consumer Jul-Sept consol PAT INR 4.91 bln vs INR 4.33 bln year ago
--Analysts saw Godrej Consumer Jul-Sept consol net profit INR 4.94 bln
--Godrej Consumer Jul-Sept consol net profit INR 4.91 bln
By Avishek Rakshit
KOLKATA – High palm oil costs hit Godrej Consumer Products Ltd.'s profitability in the September quarter as the company decided not to pass over the cost surge fully to consumers. At the same time, the financial gains at home and in some key global markets were partially offset by operations in Africa, West Asia, and the US, which continued to stress Godrej Consumer Products.
The company posted a consolidated net profit of INR 4.9 billion, up 13.5% on year, and more or less in line with the Street's expectations. Consolidated revenue rose 1.8% on year to INR 36.66 billion in Jul-Sept. Its top line was also in line with the Street's projection of INR 36.7 billion.
Revenue from Indian operations, at INR 23.0 billion, was driven primarily by a 7% growth in volume and sales value each, following partial price hikes during the quarter. Of this, the sales volume of household insecticides grew in mid-single digits, and air fresheners and fabric care products grew in double digits in volume terms. The total home care portfolio registered a 12% volume growth.
Godrej Consumer said in a statement that the newly launched anti-mosquito liquid vaporiser will take another 1-2 quarters to attain a distribution reach at desirable levels. Air Fresheners continued to gain market share and enjoy market leadership, it said. The Genteel and Fab brands of fabric care products also continued to gain market share.
However, on the personal care front, the performance was muted with sales volumes growing only 3% on year. Although personal wash products gained market share, registering flat volume growth on year. Sales volume of hair colours, deodorants, and sexual wellness products grew in double digits, and continued to gain market share.
However, the sales growth did not get effectively reflected in the company's earnings before interest, tax, depreciation, and amortisation from Indian operations, which was flat, and the standalone EBITDA margin declined 160 basis points from year ago period. "Our standalone EBITDA margin at 24.3% is at the lower end of our targeted band and is caused entirely by high inflation on palm oil," Managing Director and Chief Executive Officer Sudhir Sitapati said in a statement.
"The already high prices were further exacerbated by the import duty on oil. We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs," he said. Although Godrej felt cost pressures owing to palm oil, it did not entirely pass on the pressures to consumers but decided to hike prices judiciously in a phased manner. Usually, price hikes in an already muted demand environment lead to market share losses and a decline in sales volumes.
Godrej Consumer's operations in Indonesia and Latin America, at INR 7.6 billion, however, registered healthy margin growth. Sales grew 11% on year in constant currency terms in Indonesia, and volumes grew 7%. The EBITDA margin from Indonesia increased by 140 bps on year at 19.4%. In Latin America, sales grew 145% in constant currency terms, and EBITDA margin increased 660 bps at 5.7%.
However, the reported growth for the company's business in Africa, US, and West Asia, at INR 6.4 billion, declined 21% in rupee terms and by 12% in constant currency terms, primarily due to devaluation of the Nigerian currency, but the EBITDA margin grew by 590 bps at 14.4%.
At a consolidated level, Godrej Consumer reported an 8% on-year growth in EBITDA, backed by a 20.8% EBITDA margin, which increased by 110 bps on-year.
In a presentation to investors submitted to the bourses, Godrej Consumer said that the margin pressure in personal care products will remain for a few more quarters as price increases have not been able to completely offset the rise in palm oil costs. Margin erosion is likely to continue this year in the personal care portfolio. However, prices will increase gradually in future to offset palm oil inflation to some extent.
After Hindustan Unilever recently came up with a new soap formulation which upset the market dynamics in this product category, Godrej Consumer said it will stick to its own formulations. "Structuring" is an existing technology, where good cleaning agents are replaced with fillers in the hope that consumers don't notice, the company said, adding that there will be no material impact on the company due to the change in soap formulations in the market.
On Thursday, shares of Godrej Consumer closed 2.9% down at INR 1,255.10 on the National Stock Exchange. End
US$1 = INR 84.07
Edited by Tanima Banerjee
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