Godrej Consumer's latest business update screams worst is far from over for FMCG companies, and it seems problematic

Despite the demand conditions, GCPL has consistently delivered an average organic underlying volume growth (UVG) of nearly 7% over the past six quarters on the back of category development supported by innovations and media investments, it added. 

The company further said that the surge in palm oil and derivatives prices to the extent of a y-o-y increase of 20-30% has impacted the soaps category, which represents ~1/3rd of its standalone business revenue. 

"To partly offset the cost increases, we have taken price increases, reduced the grammage of key packs, and reduced various trade schemes. Such pricing actions typically have minimal impact on category consumption but do result in reduced inventory across wholesale and household pantries. Historical patterns indicate a normalisation in volume growth following price stabilisation, which we anticipate occurring in the next few months," the statement read.

In parallel but unrelated, the weather conditions have not been supportive (delayed winters in the North and cyclones in South India) to the Home Insecticides (HI) segment, contributing ~1/3rd to our standalone business. This has impacted HI category growths in the current quarter.

The rest of the portfolio is demonstrating robust performance and is expected to deliver double-digit UVG. However, given the significant contribution of soaps and HI to the overall business mix, the standalone business is expected to report around flattish UVG and around mid-single-digit sales growth in this quarter, GCPL added.

However, it added that its international businesses continue to do well on their relevant strategic objectives. 

For the second quarter ended September 30, 2024 (Q2 FY25),  FMCG major Godrej Consumer Products reported a 13.52% rise in its consolidated net profit to ₹491.31 crore, helped by volume growth in the domestic market and Indonesia.

It had posted a net profit of ₹432.77 crore in the July-September quarter a year ago.

GCPL is the FMCG arm of Godrej Industries Group.

Revenue from the sale of products of the Godrej group FMCG arm grew 2.2% to ₹3,647.11 crore during the quarter under review. It was ₹3,568.36 crore in the corresponding period last fiscal.

Its Managing Director and CEO Sudhir Sitapati had said: "GCPL has had a steady quarter given the headwinds of oil costs and tough consumer demand in India. Our standalone business grew by 7% in both volume and value and flat reported EBITDA."

FMCG Q2 Results Review: Dismal Show

Most consumer companies posted a dismal performance for the quarter ended September 30, 2024, owing to a challenging demand environment.

According to a report by JM Financials, key consumer-facing sectors such as fast-moving consumer goods (FMCG), retail, auto, and mall operators reported weaker-than-anticipated results. 

A slowdown in urban demand was particularly evident, impacting sales and revenue growth. The report said, "Q2FY25 earnings so far have made investors jittery, and we have seen stocks of companies reporting weak earnings/weak outlook correcting."

As per a study by Nielsen IQ, the rural market continues to outpace urban, and notably, rural areas continued to surpass urban areas in volume growth across most regions of India. In Q3 2024, both urban and rural markets showed a sequential recovery in consumer demand. Urban consumption growth in the quarter was 2.8%, while rural growth increased to 6.0% from 5.2% in the previous quarter, 2X faster growth than urban.

BSE FMCG Index performance

In the past six months, the BSE FMCG index has remained unchanged (up just 1.23%). This shows the stagnancy in the FMCG market and hence, related companies' stock prices.