Godrej Consumer hikes prices by 4-5% in Q1 to mitigate inflation impact

FMCG major Godrej Consumer Products hiked prices by 4-5 percent in the first quarter of financial year 2021, as rising inputs costs continued to impact margins, Sameer Shah, Head - Finance and Investor Relations, told Moneycontrol.

“We are in a high input inflation environment, whether it is palm oil prices, which impacts our personal hygiene portfolio, or crude oil prices. We continue to make calculated price increases in the last quarter, and at an aggregate level, we hiked prices by 4-5 percent,” said Shah.

In the personal wash-and-hygiene category, which has been lifted by Covid-19 tailwinds, the company has raised prices in double digits, Shah said.

The company, he added, would keep an eye on inflation and make calibrated price hikes if necessary. “We continue to be smart in terms of our pricing approach and also evaluate different pack price mix architecture,” he added.

The company expects input prices to remain high in the short term. However, it aims to offset this through cost-savings programmes, as well as by leveraging its international business portfolio.

Fast-moving consumer goods companies are grappling with a high inflation environment that is squeezing their margins, as witnessed in their results for the first quarter ended June (Q1). GCPL’s domestic EBITDA margins declined by 130 basis points in Q1 to 26 percent due to input cost pressure, while its gross margins fell 360 basis points. It, however, reported robust earnings during the quarter, aided by Covid-19 tailwinds, especially in categories such as personal care and home products.

Riding the hygiene wave

GCPL continued its growth momentum in the personal hygiene category during the first quarter as the country battled the second wave of the Covid-19 pandemic. The company reported 17 percent growth in the personal care category, which houses brands such as Cinthol and Godrej No.1. Its haircare range, which is comparatively more discretionary compared to soaps, also witnessed a surge in sales. The sub-category clocked double-digit growth in Q1 FY22 albeit on the low base of the last quarter (Q1, FY21).

Home care, too, reported robust growth of 21 percent, driven by double-digit growth in household insecticides. “Even on a two-year CAGR basis, the household insecticide category, which is the leading category for home care, has grown in double digits,” said Shah.

Though a surge in demand due to the pandemic is aiding the category. Shah believes the inflationary environment is also helping companies in the organised segment gain market share from the unorganised players.

“We have been gaining market share in the personal wash-and-hygiene category for the past two years and that has been a big contributor to overall growth,” he added.

Double-digit revenue growth

Godrej Consumer Products (GCPL) reported 24 percent year-on-year (YoY) jump in its net sales for the first quarter (Q1) of financial year 2022, while its profit after tax climbed 4.7 percent. The company registered net sales of Rs 2,863 crore as compared to Rs 2,311 crore in the year-ago period. Profit after tax stood at Rs 414 crore as opposed to Rs 395 crore in Q1 FY21.

Revenue from the company’s India business surged 20 percent to Rs 1,661 crore in Q1 FY22 as compared to Rs 1,381 crore in the corresponding period last year. Sales volumes in India rose 15 percent YoY in Q1. The company’s revenue from the Indonesia market inched up 1.43 percent to Rs 411.47 crore in Q1, while the Africa market reported a 59 percent jump to Rs 694 crore.

“We believe strong growth momentum is likely to continue driven by acceleration in India H1; recovery in Indonesia and profitable turnaround underway in Africa,” ICICI Securities said in a recent note.