Balancing Act: Higher Costs Impact Profit as Revenue Soars by 10%

Consolidated Net Profit for Godrej Consumer Falls 7.6% in Q1 FY24

Consolidated net profit for the maker of Goodknight mosquito repellent and Cinthol soaps fell 7.6% over the year earlier to Rs 318.82 crore in the quarter ended June, according to its exchange filing. That compares with the Rs 460.81 crore consensus forecast of analysts tracked by Bloomberg.

Profitability was impacted due to one-off costs to the tune of Rs 77.52 crore incurred in relation to the acquisition of Raymond Consumer Care business, while another Rs 4.26 crore was spent on other restructuring costs, the company said in a statement. Its net profit, without one-off items, stood at Rs 413 crore.

Revenue for the company rose 10% to Rs 3,448.9 crore, against the Rs 3,472.04 crore estimate. The pace of growth moderated as GCPL slashed prices of soaps to pass on the benefits of lower input costs to consumers.

Underlying volume grew 10% during the quarter, the company said.

Godrej Consumer Q1 FY24 Highlights (Consolidated, YoY)

• Operating profit jumped 28% to Rs 681.83 crore (Bloomberg estimate: Rs 685.51 crore).
• Margin expanded to 19.8% from 17% due to easing of input inflation (Bloomberg estimate: 19.7%).
• Advertisement spends, as a percentage of sales, stood at 9.3%, up 59% year-on-year and 42.7% over the previous quarter to Rs 320.39 crore.
• India business sales grew by 9% to Rs 2,005.48 crore led by volume growth of 12%.

“We started the year on a positive note and achieved healthy volume-led sales growth,” said Sudhir Sitapati, the company’s managing director and chief executive officer. “Our value growth was lower than volume growth as we passed on the benefits of lower input costs to our consumers.”

Categorywise Performance

• Home care grew 14%, to Rs 752 crore.
• Within the home care space, the company has witnessed a double-digit volume and value growth in the household insecticide segment, led by premium formats. It is scaling up distribution of access packs of Goodknight mini-liquid vapouriser and HIT no-gas spray.
• Air fresheners, driven by Aer Pocket and Aer Matic, have also been consistently delivering double-digit growth. The company continues to gain market share.
• Personal care rose 2% to Rs 1,109 crore.
• Within the personal care segment, the company has reported a mid single-digit growth in hair care on a high base. Value growth for personal wash grew in low single digits because of price cuts.
• Unbranded and exports grew 1% to Rs 62 crore.

“We remain focused on driving volume-led growth along with healthy investments in our brands and improvement in profitability,” Sitapati said, adding that the company continues to have a strong balance sheet.

The international business continued to perform well.

Indonesia, which had been a laggard for several quarters, started picking up in the March quarter and continued to deliver steady performance even in the June quarter backed by structural changes made last year. It grew 15% in constant currency terms and 20% in rupee terms to Rs 451 crore.

The business saw a 420-basis points improvement in margin at 19.5%, led by reduction in trade promotions and scale leverage. “We continue to focus on category development initiatives, increase media investments and launch access packs to augment general trade distribution,” the company said.

Sales in Africa, the U.S. and Middle East grew 16% in constant currency terms over the previous year, while that of Latin America and SAARC grew 79%. The performance in rupee terms was impacted by currency devaluation.

Godrej Consumer Products said that the integration of Park Avenue and KamaSutra brands that it acquired from Raymond Consumer Care is on track. Primary sales were weak at just Rs 48 crore during the quarter and secondary sales were more than twice the primary sales, the company said. Work on reducing inventory, distribution and manpower integration is underway, it said.

The company plans to invest around Rs 900 crore in organic manufacturing capex over the next 18-36 months, according to its investor’s presentation.

Peers like Nestle India met analysts’ quarterly earnings expectations as it benefited from price increases and demand for its chocolates and packaged foods, including Maggi noodles. Hindustan Unilever’s revenue growth, however, slowed on account of price cuts.

Fast-moving consumer goods makers are seeing a gradual recovery in volume as inflation continues to moderate. Volume growth for consumer companies such as Hindustan Unilever Ltd., Nestle India Ltd., Dabur Ltd., and Tata Consumer Products Ltd. rose in the range of 3–6% in the June quarter. Margin also expanded, but a good part of the gross margin gain was ploughed back into advertising spend.

Shares of Godrej Consumer closed 1.63% higher before the results were announced, as against a 0.41% gain in the benchmark NSE Nifty 50.