In a turn of things that has confounded analysts, Godrej Consumer Products posted sales equalling one-third of previous year’s sales for the June quarter in the consumer care portfolio it acquired from Raymonds. Even worse, the sales number was equal to the losses incurred by the business. The Park Avenue and Kamasutra brands posted net sales of Rs 48 crore in the April-to-June quarter, which was almost equal to the losses incurred by the business. The sales figures before integration were significantly higher than the number posted in the third quarter.
In FY23, Raymond’s consumer care business recorded an annual turnover of Rs 622 crore. Dividing the topline number equally in four quarters, the quarterly number comes to Rs 155 crore. The actual net sales posted by the company for the June quarter at Rs 48 crore fell woefully short of the previous year's sales.
Why were sales so low for Raymond’s consumer care business this quarter? There is one legitimate reason for that.
Raymond consumer care business was integrated in Godrej Consumer Products on May 8. This left only 58 days out of the 91 days full quarter for the company to sell its products, said Kaustubh Pawaskar, Deputy Vice-President of Fundamental Research at Sharekhan. Even if the same run rate of sales were taken for 91 days, the number would come up to Rs 75 crore, significantly lower than the quarterly run rate for FY23 of Rs 155 crore.
Also read How complete gets Godrej after buying out Raymond's? Whiff of scepticism in the air
The yawning gap analysts say is because of “cleaning up” of the Raymond business. Raymond’s distributors were sitting on 90 days of stock which is much higher than Godrej Consumer Products distributors who hold 10 days of stock. The company is down stocking, which leaves fewer products with the distributors, and thus reduces sales.
"We down-stocked the distributors and we're going to have to cut it down further. The distributors in this business were sitting at 80-90 days of stock," said the Godrej Consumer Products management in its Q1FY24 earnings conference call.
Another reason for lower sales in the quarter was product returns or negative sales taken by the company, the management said in the call.
Godrej Consumer Products is now trying to run the business in their own way and not follow Raymond’s path. “The company is reducing distributors for its products and retaining only the champion products in the Raymond business,” said another analyst who wished not to be named.
He further said that a lot of stock is lying on the racks, and Godrej Consumer Products is trying to process which products would work and which won’t. Mostly the company will streamline its manufacturing with products that are accepted well by consumers, said the analyst.
Pawaskar expects the Raymond business to stabilise in the next two quarters. “Raymond business will see a flattish year-on-year revenue growth and single digit EBITDA margins in FY24,” said Pawaskar. The FY24 business will be earnings dilutive and from the next year it will be positive, he added.
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