Godrej Consumer Q1 Results: Profit Falls 5% Amid Cost Inflation

Godrej Consumer Products Ltd.’s first-quarter profit fell, missing estimates, on sustained input cost inflation.

Consolidated net profit of the maker of Good Knight mosquito repellent and Cinthol soaps declined 5% sequentially to Rs 345.1 crore in the three months ended June, according to an exchange filing. That compares with the Rs 384.3-crore consensus estimate of analysts tracked by Bloomberg.

Year-on-year, the company reported a 16% drop in net profit without exceptional and one-off items, which included restructuring cost in Latin America and deferred tax in India, the filing stated.

Q1 FY23 Highlights (QoQ)

• Revenue rose 7% to Rs 3,125 crore (Estimate: Rs 3,131 crore)

• Operating profit rose 12% to Rs 520.8 crore, against a projection of Rs 554.3 crore. Year-on-year, operating profit slipped 13%.

• Margin came in at 16.7% against 15.9%. Analysts had pegged it at 17.7%. Margin narrowed 420 basis points year-on-year.

Underlying volumes fell 5% over the year earlier, according to the company’s presentation. On a three-year CAGR basis, volumes grew 3%.

Sales from India business grew 12% over the year earlier, driven by price hikes. Domestic volumes fell 6% year-on-year. India business also a saw a 2% drop in net profit over the year earlier to Rs 319 crore, the company said.

Godrej Consumer has gained market share in 90% of the categories.

• Indonesia posted a 12% drop in revenue in constant currency.

• Africa, the U.S. and the Middle East grew 12%.

• Latin America and SAARC registered 15% growth.

Category-wise, the home care segment declined 4% on a high base and relatively muted season. Personal care grew 25%. The company said it has been strengthening its “value-for-money” proposition with the launch of the affordable range of products. For instance, it launched ‘Magic Bodywash’ priced at Rs 45. The initial response to Godrej Expert Rich Crème’s at Rs 15 is also “encouraging”, the company said.

The non-mosquito portfolio, it said, saw "double-digit" sales growth.

According to Sudhir Sitapati, managing director and chief executive officer, volume growth is expected to return in the medium term with inflationary pressures abating. “We are on a journey to reduce inventory and wasted cost and are deploying this to drive profitable and sustainable volume growth across our portfolio through category development,” he said.

Successive price increases, he had said in its quarterly update, impacted demand in rural markets more than urban areas. However, the relatively non-discretionary, mass pricing of its portfolio is expected to aid volumes.

The company also expects to report better gross margin in the upcoming quarter, alongside continued higher marketing investments with a significant focus on reducing controllable costs, said Sitapati. During the quarter, the company mitigated higher costs by 230 bps reduction in employee benefit expenses and 230 bps reduction in other expenses.

Shares of the company fell 8.75% on the BSE after missing Q1 estimates.