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Flattish volume growth; margin pressure in the Indian business

Godrej Consumer Products (GCPL) released its pre-quarterly update for 3QFY25. Here are the key takeaways:

India performance

*  The demand conditions in the Indian FMCG sector have been subdued over the past few months.

*  Despite this, GCPL was delivering an average organic Underlying Volume Growth (UVG) of ~7% over six quarters, driven by category development, innovations, and media investments.

*  The standalone business is expected to report flattish UVG and mid-singledigit sales growth for 3QFY25 due to weakness in the Soaps and HI segments.

*  Historically, the standalone business has delivered normative EBITDA margins in the range of 24-27%. However, in 3QFY24, exceptional margins of 29.7% were achieved, driven partly by favorable commodity prices. The current inflationary environment is putting pressure on margins, and the company expects a temporary decline below the normative range in this quarter

Soaps segment

*  The soaps category, which contributes approximately one-third to the standalone business revenue, has been impacted by a 20-30% YoY increase in palm oil and derivative prices.

*  To mitigate these cost increases, GCPL has implemented price hikes, reduced the grammage of key packs, and scaled back various trade schemes.

*  These measures, while having minimal impact on category consumption, have led to reduced inventory across wholesale and household pantries.

*  The company anticipates normalization in volume growth in the next few months as pricing stabilizes

Home Insecticides (HI) segment

*  Growth in the Home Insecticides segment, which contributes another onethird to standalone business revenue, has been negatively affected by unfavorable weather conditions, including delayed winters in North India and cyclones in South India.

Rest of the portfolio

*  The rest of the portfolio is demonstrating robust performance and is expected to deliver double-digit       UVG..

International business

*  The Indonesia business is expected to continue delivering strong performance with mid-single-digit volume growth and high-single-digit sales growth.

*  The GAUM (Godrej Africa, USA, and Middle East) business is anticipated to see a decline in volumes due to a reduction in trade stocks and portfolio simplification. The effects of these actions would be largely completed in 3QFY25. However, GCPL remains on track with its profitability goals and expects this to be the fourth consecutive quarter of healthy EBITDA margins for GAUM.

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