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Growth delivery sustains; near-term margin pressure

* Godrej Consumer (GCPL) reported a 2% YoY increase in consolidated net revenue to INR36.7b (est. INR36.9b). Organic revenue growth in constant currency (CC) was 14% YoY. Consolidated EBITDA was up 5% (in line).

*India revenue grew 6% YoY with healthy 7% volume growth. Home Care clocked 12% growth. HI category was stable and saw mid-single-digit volume growth. Air Fresheners and Fabric Care delivered strong doubledigit volume growth.

* Personal Care portfolio remained muted and registered 3% YoY growth. Personal-wash saw flat volume growth with market share gains. Hair Color volume grew in double digits. Deodorants and Sexual Wellness delivered strong double-digit volume growth.

* International performance was hit by unfavorable currency. Indonesia revenue was up 11% YoY (9% in CC) with healthy UVG of 7%. GUAM revenue was flat YoY (-10% in CC) due to currency volatility.

* GCPL remained volume growth outlier among its FMCG peers. The company posted strong volume growth in FY24 and aims to achieve high single-digit growth in FY25. The company keeps expanding its TAM and looks to gain share in rural markets and all channels. Under project Vistaara 2.0, the company plans to double its outlet coverage and triple its village coverage. Growth outlook remains positive, but the near-term margin outlook is cautious as sharp RM inflation impacts India margin. Price hike is expected in personal wash, but near-term gross margin is expected to be weak. However, given its focus on growth, we remain constructive on GCPL. We reiterate our BUY with a TP of INR1,550 (based on 55x Sep’26E EPS).

India sustains volume growth; currency impacts on International

Consolidated performance

* India volume up 7%: GCPL posted consol. sales growth of 2% YoY to INR36.7b (est. INR36.9b). Organic sales rose 5% YoY (adjusted to divested part of Africa business). Consolidated sales in CC rose 10% YoY (14% organic). Consolidated organic volume growth was 5%, while India volume grew 7% YoY.

* Improving operating margin: Gross margins expanded 70bp YoY to 55.6% (est. 54.1%). As a percentage of sales, ad spends decreased by 25bp YoY to 9.9%, while other expenses increased by 15bp YoY to 16.4%. EBITDA margin expanded by 70bp YoY to 20.8% (est. 20.3%). India EBIT was down by 11% while International EBIT up by 8% YoY.

* Double-digit PAT growth: EBITDA grew 5% YoY to INR7.6b (est. INR7.5), PBT grew 10%YoY to INR7.1b (est. INR6.9b), and Adj. PAT grew 12% YoY to INR4.9b (est. INR4.8b).

* International Performance: Indonesia revenue grew 9% (11% in CC) with volume growth of 7%. Indonesia business EBITDA margin expanded by 140bp YoY to 19.4%. EBITDA grew 17%. GAUM organic revenue declined 10% (flat in CC). Volume declined 8%. GAUM EBITDA margin expanded 590bp YoY to 14.4%, led by gross margin expansion and better mix. Absolute EBITDA grew 33% to INR930m. LATAM saw 36% YoY growth (145% cc). EBITDA margin rose 660bp to 5.7%.

* Standalone performance: Net sales (including OOI) grew 6% YoY to INR23.0b in 2QFY25. India business reported volume growth of 7%. Home care business registered strong 12% growth (8% in 1Q) and personal care 3%. Gross margin contracted by 210bp YoY to 56.0%. GP was up by 2%. EBITDA margin fell 145bp YoY to 24.3%. EBITDA was flat YoY at INR5.6b.

* In 1HFY25, revenue fell 1% YoY, whereas EBITDA/APAT grew 6%/18% YoY. For 2HFY25, the implied revenue/ EBITDA/APAT growth is 8%/2%/3%.

Highlights from the management commentary

* Standalone India business delivered 7% volume growth, despite tough consumer demand during the quarter.

* GCPL expects to maintain volume growth of 6% to 8% and significant price growth in 2H, potentially bordering on double digits.

* Consol. EBITDA margins are expected to be significantly lower in 3Q compared to the previous quarter due to seasonal factors, particularly in GAUM.

* RCCL's EBITDA target set by the company is INR1.4b to INR1.5b, but it is expected to fall slightly short of this target.

* Indonesia showed steady performance with 7% volume growth, 9% revenue growth, and 17% EBITDA growth.

* GAUM reported a weak quarter in terms of revenue (organic volumes down 8% and value down 10%), but on the profitability side, it was an exceptional quarter as reported EBITDA jumped 33%, resulting in margins of 14.4%.

Valuation and view

* We cut our EPS estimates by 2-3% for FY25/FY26 due to margin pressure and slow urban demand.

* GCPL has seen improved sales growth in its India business in recent quarters. The implementation of disruptive innovations, the introduction of access packs, expansion into new growth categories and increased advertising expenditure are anticipated to contribute to a consistently robust growth trajectory in this high-margin and high-ROCE domestic business.

* The company is consistently working toward expanding TAM for the India business, along with product innovation to drive frequency. Besides, there has been a consistent effort to fix the gaps in profitability/growth for its international business. We reiterate our BUY rating with a TP of INR1,550 (based on 55x Sep’26E EPS).

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