FMCG heavyweight Hindustan Unilever (HUL) posted its worst fall in six weeks on Monday, marking the Nifty FMCG index as the worst-performing sectoral index, down over 2%. Meanwhile, shares of Godrej Consumer Products witnessed their steepest decline, nosediving over 11% on the day.
The declines in HUL and Godrej were followed by Dabur, Marico, Tata Consumer Products, Britannia and Colgate — these, too, were down between 2% and 5%.
Godrej Consumer said in its Q3 business update, shared with investors well before the end of the December quarter, that a 20-30% year-on-year surge in palm oil and derivatives prices has impacted the soaps category, representing one-third of the standalone business revenue.
“To partly offset the cost increases we have taken price increases, reduced 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 the price stabilisation, which we anticipate occurring in the next few months,” the company said.
Godrej also warned that weather conditions have impacted its home insecticides segment, which contributes about one-third of the standalone business.“These are exceptional situations in Standalone business that the management believes are transitionary and not structural. Hence the management remains focused on navigating these near-term challenges while maintaining strategic investments for long-term growth as these negative trends are likely to persist for a few months,” said the company.Domestic brokerage Emkay Global downgraded Godrej Consumer to a “reduce” rating, from a precious “add” rating, at a target price of Rs 1,225.
“We cut earnings by 4-7% to factor in demand as well as inflationary stress ahead. In a mid-quarter update (Q3FY25), GCPL noted demand stress, wherein 2/3rd of the India business is impacted: Soaps portfolio affected by sharp inflation in palm oil (leading to price hikes and reduced trade promotion), and stress in Household Insecticides, given delayed winter in the North and floods in the South. Overall India revenue should see mid-single digit value growth with flat volume,” Emkay said.
Emkay said India EBITDA should decline by high teens in Q3 on high-base and raw material pressures. It sees a low-single digit consolidated revenue growth and a low-double digit decline in EBITDA.
Macquarie, which has a neutral call on GCPL, has decreased its target price on Godrej from Rs 1,300 to Rs 1,260 while CLSA has cut the target to as low as Rs 1,000.
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