Shares of Godrej Consumer Products Ltd. (GCPL) dropped sharply by 10% on Monday, reaching a low of Rs 1,121.95 in early trade before recovering slightly to close at Rs 1,131.55, down 8.41% on the Bombay Stock Exchange (BSE). The decline came after a muted mid-quarter business update, raising concerns about subdued demand in India’s FMCG market.
What Triggered the Drop?
- Soaps Segment Pressure: Palm oil prices surged 20-30% year-on-year, squeezing margins in the soaps segment, which accounts for nearly one-third of GCPL’s revenue. The company responded with price hikes, smaller packages, and reduced trade schemes, which led to lower inventories in wholesale markets and household pantries.
- Home Insecticides (HI) Segment Impacted: Sales in the HI segment struggled due to adverse weather conditions.
- International Challenges: While Indonesia showed resilience with mid-single-digit volume growth, the Godrej Africa, USA, and Middle East (GAUM) segment faced portfolio restructuring and lower trade stocks. However, EBITDA margins improved and are expected to remain healthy.
Should You Buy?
Despite near-term challenges, brokerages remain cautiously optimistic:
- Antique Stock Broking: Trimmed FY25-27 earnings estimates by 6% but maintained a ‘Buy’ rating with a revised target of Rs 1,512. Analysts expect recovery in the soaps and insecticides segments as input costs stabilize.
- JPMorgan: Maintained an ‘Overweight’ rating with a target price of Rs 1,410. JPMorgan acknowledged short-term risks but anticipates mid-single-digit revenue growth driven by price hikes and product innovations.
Key Positives to Watch
- Resilient Portfolio: Excluding soaps and HI, GCPL’s other segments continue to post double-digit volume growth (UVG).
- Cost Stabilization: A recovery is expected as input costs like palm oil normalize.
- International Margins: EBITDA margins in international markets, particularly GAUM, are improving and likely to remain strong.
Should You Invest?
For long-term investors, the sharp dip in GCPL’s stock price could present a buying opportunity. While the company faces short-term headwinds, its diversified portfolio, stabilization in input costs, and recovery potential in key segments suggest a positive outlook.
Investor Tip: Monitor palm oil prices and demand trends in the soaps and HI segments to evaluate recovery prospects in the upcoming quarters.
Also Read: ITI Ltd Stock Surges 4.18%: Is It the Right Time to Invest?
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