After showing good traction in domestic volumes in the last two quarters, Godrej Consumer Products (GCPL) has disappointed a bit on the volume front in the quarter ended March 2018. Overall domestic volume growth has come down to 6 per cent now from the double digit levels seen earlier. The company posted domestic revenue growth of 7 per cent to Rs 1329 crore over the March 2017 quarter (assuming GST in the base quarter). In contrast, it had recorded a domestic revenue growth of 11-17 per cent in the previous two quarters, backed by good volumes.

Weakness in hair colour and insecticides

While overall domestic volumes grew by a mere 0.1 per cent in the quarter ended June 2017 (over the June 2016 quarter) due to the GST transition, the company recorded volume growth of 10 per cent and 18 per cent, respectively, in the September and December 2017 quarters. Price cuts in segments such as soaps and hair care, triggered by lower GST rates for these products played a major role in improving volumes. While GCPL reduced the prices of soaps in July, it took price cuts of 6-10 per cent in hair colours to pass on the benefits of GST rate cuts announced in November 2017 to customers.

While soaps have continued the good run this time around too, hair colour has disappointed. Volume growth in the hair colour segment was impacted due to upstocking by the distribution channels after the GST-led MRP cuts in the earlier quarter. Insecticides segment, which has been the company’s Achilles’ heel in recent quarters, deteriorated in the March 2018 quarter. The segment saw 5 per cent shrinkage in revenues in this period over the previous year.

Consolidated numbers

GCPL derives about 55 per cent of its total revenue from the domestic market and the rest from overseas markets such as Indonesia, the US, West Asia, Africa and Latin America. At the consolidated level, the company posted a constant currency sales growth of 6 per cent to ₹2,494 crore (assuming GST in the base quarter) and adjusted net profit growth of 12 per cent to ₹423 crore. While the Indonesian business - which has been seeing headwinds in recent quarters - recovered in the three months ended March 2018, US, Africa and West Asia had a relatively weak quarter.

Outlook

Although volumes have been impacted in the current quarter, the company’s tilt towards premium and underpenetrated products will stand it in good stead domestically. Personal repellents as well as other launches in the insecticides segment such as the Good Knight PowerChip and liquid vapourisers with higher efficacy is expected to boost sales in the months to come. New product lines, led by home and car air fresheners (Aer), have seen strong revenue growth of over 20 per cent in the last many quarters since 2016-17. With a penetration of less than 10 per cent, this segment offers great potential too.

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