Why Godrej Consumer Products shares fell after Q2 turnaround | So Good News


Shares of Godrej Consumer Products Ltd (GCPL) fell by nearly 5% in Thursday morning trade on the National Stock Exchange. This is the day that the broadest markets were in a positive zone.

Investors in the GCPL stock market were disappointed by the company’s update for the September fiscal year (Q2FY23) on Tuesday. Markets were closed on Wednesday due to the Dussehra festival.

The company said it will likely have a weaker showing on volume and margins ahead of Q2 compared to what was seen in Q1. In the Indian business, GCPL expects volume to decline by single digits in Q2 with a three-year compound annual growth rate (CAGR) of single digits. This compares to the average three-year CAGR numbers in Q1. Demand in rural markets continued to decline last quarter.

Furthermore, Indonesia’s business did not show relief due to weakness in the sanitation sector against the high base of last year due to covid. GCPL is seeing a steady decline in cash flow from initial numbers. But apart from cleanliness, sales growth should grow by single digits. In Q1, Indonesia’s currency fell by 12% in constant currency.

However, there are bright spots. The GAUM division (Godrej Africa, USA, and Middle East) will lead Q1 and is expected to see growth in revenue.

Overall, in Q2, GCPL expects lower than single digit growth. In Q1, consolidated sales increased by 8% year-on-year with a three-year CAGR of 10%.

In addition, Ebitda in Q2 is expected to be lower than in the mid-year period due to higher spending in the quarter, higher marketing activities and lower performance in Indonesia. Ebitda is earnings before interest, tax, depreciation and amortization.

Dolat Capital Market Pvt Ltd expects GCPL to report 7-8% revenue growth and a sequential decline in Ebitda in Q2. In Q1, the rate stood at 15.3%.

To be fair, things should improve in the future as the benefits of falling palm oil and crude oil prices will be passed on. Additionally, demand is expected to improve in the second half of FY23 and reduce inflation.

“With the investment of the new CEO focused on promoting economic growth, investing more in domestic businesses that generate more revenue, the company will earn more money in the short term,” said analysts at Motilal Oswal Financial Services in a report on 5. October.

As things stand, GCPL shares are up 29% from their 52-week low seen in March.

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