FMCG leader Godrej Consumer Products is confident of delivering double-digit growth in the remaining quarters of the financial year 2022, however, its margins may remain stressed for the short term, the company’s management indicated while addressing investors after reporting its second-quarter (Q2) results for the financial year 2022 on Thursday.
“In the short term, maybe for the next two months, there will be a bit of contraction in the operating margin. However, till the time double-digit growth momentum continues we do not mind investing to be a bit ahead of the curve even if it means a short-term impact on our margins,” said Sameer Shah, chief financial officer, Godrej Consumer Products.
Godrej Consumer Products, the management informed, has also hiked the prices of its products across the portfolio. This is the second round of price hike taken by the company this year. Earlier in Q1, it had hiked prices by 4-5 percent to mitigate the impact of inflation.
However, even after two rounds of price hikes, the company expects a dent in its margins in the short term given the sky-high inflation.
“The inflation is 50-55 percent up year-on-year and the industry cannot pass on this quantum of price hikes to customers as it will impact the consumption,” said Shah.
GCPL’s EBITDA (earnings before interest, taxes, depreciation and amortisation) margins for Q2 declined by 200 basis points to 21.6 percent. Its margins in India decreased by 330 basis points on account of high input costs.
Q2 performance
Godrej Consumer Products reported a 4.5 percent year-on-year (YoY) jump in its consolidated net profit for the second quarter to Rs 479 crore as compared to Rs 458 crore reported in the year-ago period. The company registered consolidated net sales of Rs 3,142 crore during the quarter as compared to Rs 2,894 crore reported in Q2 FY21, a climb of over 8 percent.
Sequentially, the company’s net sales were up over 9 percent quarter-on-quarter (QoQ), while net profit rose over 15 percent. The company had reported consolidated net sales of Rs 2,863 crore in Q1 FY22 and a consolidated net profit of Rs 414 crore.
GCPL’s India sales in the quarter gone by surged by 10 percent to Rs 1,809 crore and volumes grew by 4 percent. EBITDA for India operations, however, declined by 3 percent to Rs 445 crore on a high base. Its net profit without exceptions and one-off grew by 2 percent to Rs 356 crore.
Its Indonesia business delivered a soft performance with a sales decline of 2 percent in constant currency terms.
“The economy is witnessing gradual recovery. We continue to see strong traction in Hygiene. EBITDA margins expanded by 60 bps year-on-year,” the company said in a press note.
“Our Africa, USA and Middle East cluster delivered a broad-based double-digit sales growth of 16 percent in constant currency terms,” it added.
Growth drivers
The company’s personal care portfolio continued to witness strong growth momentum during the quarter and reported a double-digit sales growth of 12 percent in Q2.
“We continued to gain market share, led by micro-marketing initiatives to fuel growth. Even now, we navigate high input costs through calibrated price increases,” it said.
“Hair colour recorded double-digit growth. Godrej Expert Rich Crème continues to perform well, backed by strong marketing campaigns. Godrej Expert Easy 5 Minute Shampoo Hair Colour is scaling up well,” the company said.
The homecare segment, too, saw a steady growth of 7 percent during the quarter. “We delivered single-digit growth in household insecticides. Growth was mixed driven by seasonality during the quarter. We have scaled up Goodknight Jumbo Fast Card nationally to drive penetration and growth in burning formats,” it said.
Air fresheners and fabric care continued to see a gradual recovery and grew in double-digits.
Going ahead, the company is cautiously optimistic about the demand recovery in the near term. “We continue to have a healthy balance sheet, our net debt to equity ratio continues to come down and remain confident of leveraging growth opportunities to drive sustainable growth across our portfolio in the fiscal year 2022,” said Nisaba Godrej, executive chairperson, GCPL.
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