Shares of Godrej Consumer Products fell 10% to Rs 1,112.05 on the BSE during early trade on Monday following a disappointing mid-quarter business update in relation to demand challenges and rising input costs.
The surge in palm oil and derivative prices, with year-on-year increases of 20-30%, has weighed heavily on the soaps category, which accounts for one-third of the companyโs standalone revenue.
The demand conditions in India have been subdued for the past few months which is evident in FMCG market growth. Despite the demand conditions, GCPL has over the past six quarters consistently delivered an average organic UVG of ~7% on the back of category development supported by innovations and media investments
Godrej Consumer Products said.
In a bid to improve the margins, Godrej Consumer Products has now implemented measures such as price hikes, reduced grammage in key products, and scaled back trade schemes.
โSuch pricing actions typically have minimal impact on category consumption but do result in reduced inventory across wholesale and household pantry. Historical patterns indicate a normalization in volume growth following price stabilization, which we anticipate occurring in the next few months,โ it said.
Meanwhile, the company also pointed out that weather disruptions have also affected growth in the Home Insecticides segment, which is another key revenue driver contributing one-third of its standalone business.
The current inflationary environment has also exerted pressure on margins. The company anticipates a temporary decline below its typical margin levels this quarter.
Performance in International Markets
Godrej Consumer Products expects its Indonesia business to maintain strong performance. It projects mid-single-digit volume growth and high single-digit sales growth.
However, its Godrej Africa, USA, and Middle East (GAUM) organic business is likely to see a volume decline due to portfolio simplification efforts and reduced trade stocks, in line with the companyโs earlier guidance.