Published on 13/04/2020 10:35:26 AM | Source: Motilal Oswal Financial Securities Ltd

Neutral Godrej Consumer Products Ltd For Target Rs. 620 - Motilal Oswal

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Covid-19 led lockdown weighs on performance

Godrej Consumer Products Ltd (GCPL) has released its pre-quarterly update for 4QFY20. Key insights highlighted below:

Macro outlook: 4QFY20 was an unprecedented quarter due to the spread of the Coronavirus (COVID-19) pandemic globally, which impacted all geographies that GCPL operates in. While the company has adhered to the lockdown, it has also worked with the Indian government to re-open the supply chain for essential items in the country. However, there were significant issues with manufacturing, transportation and distribution of essential items in the later part of Mar’20. GCPL expects the situation to gradually improve in the coming days, with manufacturing and distribution of essential items being restored, at reduced levels.


* GCPL witnessed steady demand across categories till mid-Mar’20. However, social distancing and the eventual lockdown in many geographies (where GCPL operates), resulted in virtually no sales in the later part of Mar’20, significantly impacting its sales performance in 4QFY20.


* In these tough times, the company has worked on launching hygiene products across geographies, some of which have already been executed; the rest should get launched and scaled up in the near term.

* India market: Demand was steady till the COVID-19 outbreak, but slumped in the last 12 days of Mar’20 due to disruption in both back-end/front-end supply chains. March also marks the start of the season for a few categories like soaps and household insecticides (HI). Consequently, we expect GCPL to report highteens revenue decline in the quarter. It also saw low-double-digit sales decline in distributor performance, implying depletion in stock levels. However, the company is awaiting data on stock levels with the general trade shelves. GCPL expects a gradual bounce-back in the near term, driven by restoration of the supply chain, higher consumption for Personal Wash and an ongoing favorable season for HI. The company has continued to gain market share across key categories of its operations.

* Indonesia market: GCPL recorded close to mid-single-digit constant currency (CC) sales growth, despite the COVID-19 disruptions. The country is following extreme social distancing practices as of now.

* GAUM (Godrej Africa, the US and the Middle East): GCPL recorded decline in teens, in CC terms, amidst the COVID-19 disruptions in many countries of its operations. Most big-sized markets are in lockdown or in partial lockdown mode till mid-Apr’20.

* Within ‘others’ geographies: The performance in Latin America is expected to be steady in CC terms. However, in INR terms, the company expects performance to be muted. Performance in SAARC countries was also steady.

* Thus, the company’s international business is expected to record mid-singledigit sales decline in INR terms, resulting in low-double-digit consolidated sales in 4QFY20.


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