Godrej Consumer slips 8% post December quarter results

Shares of Godrej Consumer Products (GCPL) slipped 8 per cent to Rs 681 on the BSE as the company’s December 2019 quarter (Q3YF20) performance was in-line with the market’s expectations. The stock erased its entire gain recorded during January.

On consolidated basis, GCPL’s net sales grew 2.1 per cent year- on-year (YoY) to Rs 2,778 crore while its profit after tax (PAT) increased 7.7 per cent YoY to Rs 450 crore. Volume growth stood at 7 per cent on a favourable base (1 per cent in Q3FY19).

Consolidated earnings before interest, tax, depreciation and amortization (Ebitda) margin was maintained at 22.9 per cent.

Analysts expected margin to remain flat in the medium term as palm oil inflation drives out local firms and they would also reduce consumer promotions.

“During the quarter, GCPL witnessed deceleration in the urban markets. The company believes that the industry was witnessing better growth in urban market prior to Q3FY20. We attribute this to twin effects of general slowdown and high base of past couple of years”, analysts at Dolat Capital said.

“We reiterate our Sell rating as volume growth in India and Africa could be under pressure, although the company will maintain margin and should be able to drive volume in India and Indonesia through innovations and scaling up new products, provided there is a turnaround in the economy, analysts at Elara Capital said in quarterly results analysis. However, the stock was trading below target price of Rs 196 per share.

“GCPL’s results, albeit in line, indicate no spark of revival. Similarly, management commentary does not express any significant optimism that the modest earnings growth trend for five years now (11.2 per cent compound annual growth rate or CAGR over FY15-20) will be any different for the next two years. With RoCE at 17 per cent in FY20 also significantly lower than peers and unlikely to increase sharply over the next two years, valuations of 38.7x FY22E EPS appear fair,” Motilal Oswal Securities said in results update with ‘neutral’ rating on the stock.

Ahead of Q3 results, GCPL had outperformed the market by gaining 8 per cent in January, as compared to 0.13 per cent decline in the S&P BSE Sensex till Wednesday.


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