Godrej Consumer Noses Ahead in Q4FY25, Yet Investors Remain Skeptical: Here's Why
Increase in Godrej Consumer's Q4 Profits Alongside a 3% Dip in Shares: Explaining the Unexpected Turn
By Sparsh Bansal Follow Us Godrej Consumer Products has managed to scrape back into the black in Q4FY25, but the share price took a hit, falling 3.14% to an intra-day low of Rs 1,211.50. The company's profit before tax stood at Rs 670 crore, a 4% decline year-on-year in the final quarter of FY25, with margins facing continued pressure. Moreover, the company acknowledged that demand conditions in India have been affected by urban consumption headwinds. A sharp increase in palm oil prices by more than 50% is pegging down its EBITDA margins [1].
Here's a breakdown of key reasons why investors are keeping their guard up:
Motilal Oswal on Godrej Consumer
This brokerage house warned that the company is still grappling with margin pressure, which is likely to persist. The company's higher tax outgo eroded the adjusted profit after tax, which fell 25% year-on-year to Rs 430 crore. The gross margins shrank 360 basis points year-on-year to 52.5%, and the EBITDA margin contracted 140 bps year-on-year to 21.1% due to a rise in ad expenses (1%) and other expenses (9%) [1]. In FY25, net sales, EBITDA, and APAT were up 2%, down 2%, and down 4% year-on-year, respectively [5].
Godrej Consumer Shares Surge 2.4%: 3 reasons Why Nuvama Expects 26% Upside
Despite a lower-than-expected India business volume growth (4% year-on-year) and continued margin pressure, Nuvama sees a potential 26% upside. The reasoning behind this optimistic outlook is that the company is witnessing softer domestic demand, and margins are under pressure. Godrej Consumer Products' consolidated gross profit margin contracted 362 bps year-on-year to 52.2%. The reported net profit (profit after tax) declined by 8.1% year-on-year to Rs 443.3 crore, which was 11% lower sequentially. The adjusted net profit fell 9% year-on-year and 11.2% quarter-over-quarter [1].
GCPL Back in Black in March Quarter
Although the company's profit before tax pre-exceptionals and forex impact slipped 3% year-on-year, falling to Rs 670.8 crore in Q4FY25 from Rs 691.2 crore in the same period a year ago, JM Financial has a 'Buy' rating on the stock [2]. Moreover, taxes increased significantly year-on-year, with expenses reaching Rs 227.5 crore, a 9% bump from Rs 208.7 crore in Q4FY24. Additionally, Godrej Consumer Products' Latin American region reported an 11% year-on-year decline in sales [2].
With a focus on FMCG and specific interest in GCPL, JM Financial Limited, Motilal Oswal Financial Services, Nifty 50, BSE Sensex, stock market stats, share market news, our website App, and business news [3], let's dive in and break down why investors are staying cautious.
Insights from Enrichment Data
- Profit Swing Driven by One-Off Factors: GCPL's swing from a loss in Q4 FY24 (loss of Rs 1,893 crore mainly due to impairment in its Africa business) to profit in Q4 FY25 is partly attributed to the absence of last year’s impairment losses, reflecting a base effect rather than a sustained improvement in profitability [5].
- Margin Pressures Persist: Despite revenue growth driven by volume gains, EBITDA margins continue to remain under pressure due to input cost inflation and higher taxes [3][4][5].
- Weak Demand in Personal Care Segment: While home-care products have shown robust volume growth, the personal care segment still shows signs of weakness, putting a damper on overall demand and growth potential [4].
- Market Conditions Remain Challenging: The market environment, with factors like competitive intensity, inflationary pressures, and consumer discretionary spend, continues to present obstacles [5].
- Stock Volatility and Technical Concerns: Despite the stock's rebound and bullish longer-term trend indicators, there remains a risk thanks to the volatility and the dependence on medium-term recovery assumptions [1].
- In the final quarter of FY25, Godrej Consumer Products' profit before tax experienced a 4% decrease year-on-year, highlighting continued margin pressure.
- The gross margins of Godrej Consumer Products shrank 360 basis points year-on-year due to a rise in ad expenses and other expenses.
- Despite a lower-than-expected India business volume growth, some analysts like Nuvama anticipate a 26% upside in Godrej Consumer Products' shares, citing softer domestic demand.
- GCPL's profit swing from a loss in Q4 FY24 to profit in Q4 FY25 was partly due to the absence of last year’s impairment losses, suggesting it may not be a sustained improvement.
- EBITDA margins of Godrej Consumer Products continue to remain under pressure due to input cost inflation and higher taxes, presenting a challenge for investors.
- The personal care segment of Godrej Consumer Products is facing signs of weakness, putting a damper on overall demand and growth potential.
- The market conditions, characterized by factors like competitive intensity, inflationary pressures, and consumer discretionary spend, continue to present obstacles, sparking caution among investors.
