Godrej Consumer may be the fastest growing FMCG player in FY26

Godrej Consumer Products (GCPL) had a disappointing third quarter (Q3FY25) with flat volumes (after 7 per cent growth H1FY25).

Price hikes will be required to maintain margins to offset the cost of palm oil inflation.

However, some analysts see Q3 as an exception with strong volume growth expected to resume and it may be the fastest growing FMCG player in FY26.

In Q3, double-digit growth in laundry, air-fresheners, and sexual wellness were offset by declines in soaps and household insecticides.

Further soap price hikes are expected in Q4 onwards.

Incense sticks gained market share (high single digits) while liquid vaporisers and laundry liquids maintained market-leadership and soaps gained market share in modern trade. But deodorants lost market share.

The India operating profit margin was 22.5 per cent in Q3, lower than the historic 24-26 per cent range.

Other expenses grew 20 per cent Y-o-Y in India as GCPL continued rural investments.

Consolidated and standalone operating profit declined 10 per cent and 21 per cent Y-o-Y respectively, as margins contracted 290 basis points (consolidated) and 675 basis points Y-o-Y (standalone).

In the near term, GCPL s India profitability may continue to face pressure given modest volume growth and higher input cost.

Improvement in the international business margin should compensate at consolidated level.

Restructuring of Africa business is nearly complete. Growth in insecticides business has been below expectations.

Management seems confident that old inventory would be cleared by Q4FY25, paving the way for accelerated scaling up of new Renofluthrin or RNF-based liquid vaporisers.

The insecticide segment could witness 5 7 per cent volume growth.

In personal care, the non-soap portfolio may outperform with hair colours, hand wash, and the acquired portfolio of Raymond Consumer Care (RCCL) could drive growth and yield higher margins.

Soaps remain under pressure due to steep inflation in palm oil. GCPL hiked soap prices during Q4FY25, leading to a cumulative price hike of 8-12 per cent for soaps in FY25.

Another hike may be on the cards with persistent palm oil inflation. But soap is expected to see lower growth of 6-8 per cent due to high penetration levels.

GCPL s international businesses appear set for growth. In Indonesia, management is confident of 6 8 per cent growth with an operating profit margin at 21 per cent in FY25, with a medium-term target of 23-25 per cent.

In GAUM (Godrej Africa, USA and Middle East), restructuring is near-complete, and revenue growth is expected to recover in constant currency terms, while operating profit margin could expand by 100-200 basis points in the medium term.

GAUM margins are above 14 per cent for four quarters in a row and there is a room for growth by 100-200 basis points.

Management expects positive organic revenue growth in GAUM starting Q4FY25.

LATAM continues to perform well with volume growth at above 25 per cent and double-digit operating profit margins.

Both Argentina and Nigeria are expected to see improvement.

GCPL s scale up of RNF-based household insecticides and soap margins will be key monitorables.

Management says urban slowdown in India is a definite cause for concern.

While there has been some correction in palm oil prices, it is unclear if the trend will sustain, as the palm season in Malaysia/Indonesia is from July to September.

GCPL consumed low-priced palm inventory (procured in Q2) in Q3, whereas in Q4, it will consume high-cost inventory.

In RCCL brands (Park Avenue/KS), there is no incremental update and management remains happy with performance in sexual wellness, but deodorants have been a mixed bag.

It is separating deodorant distribution systems.

Margins are better (mid-teens) than at the time of acquisition but still below GCPL s business case (about 25 per cent).

The stock remains an FMCG leader with most analysts positive on the medium-term prospects.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.