Why Godrej Consumer Share Price is Falling

The quarterly results season is upon us. Investors are waiting with bated breath to see how stocks from their portfolio have performed in the quarter gone by.

IT companies will be the first ones to report their earnings. India's largest IT company Tata Consultancy Services (TCS) is all set to announce its results on 10 October while Wipro and Infosys will announce their numbers on 12 and 13 October, respectively.

A few companies have already come out with their quarterly updates and have seen a sharp move in their share prices after the release.

Among the lot, one such company which recently declared its numbers is FMCG major Godrej Consumer Products. Following its Q2 update, the company's stock price saw a sudden fall.

That's not all. Godrej Consumer has underperformed its peers this year. The company's share price has remained under pressure at a time when the best FMCG stocks like ITC have seen a substantial rise.

Performance of Top FMCG Companies

Company	CMP (Rs)	YTD Performance (%)
Hindustan Unilever Ltd.	2,599	10%
ITC Ltd.	334	53%
Nestle India Ltd.	19,321	-2%
Dabur India Ltd.	540	-7%
Britannia Industries Ltd.	3,783	5%
Godrej Consumer Products Ltd.	830	-14%
Tata Consumer Products Ltd.	781	5%
Marico Ltd.	521	2%
Colgate-Palmolive (India) Ltd.	1,580	7%
Emami Ltd.	488	-6%

Source: Equitymaster

Let's dig a little deeper and understand why the stock of Godrej Consumer has remained under pressure throughout 2022.

Weak Q2 Update

Godrej Consumer shared its quarterly update this week on Wednesday. Here's an excerpt:

• 'The Indian FMCG industry continued to remain soft during the (September) quarter.
  
  Rural markets witnessed slower growth compared to urban.'

The company highlighted that it would see a drop in EBITDA for the September quarter due to high inventory costs, high marketing spends, and weak Indonesia performance.

In Indonesia, the company expects early-stage constant currency sales to decline by double-digit due to lower post-Covid-19 hygiene performance and hygiene comparators from a larger base.

In the June 2022 quarter too, the company had reported a 17% drop in profit on the back of a marginal rise in revenues. Back then, the company had raised inflationary concerns.

Commodities like palm oil derivatives and crude oil have fallen which should bode well for FMCG companies. But Godrej Consumer is of the view that its effect will be seen in the coming quarters.

In the coming quarters, it expects recovery in consumption, expansion in gross margins, and upfront marketing investments.

Owing to a weak Q2 update, shares of Godrej Consumer fell 5% on Thursday, in an otherwise firm market.

Slowdown in FMCG Industry

Amid the unprecedented global commodity inflation, the entire FMCG industry witnessed a consumption slowdown in the initial months of 2022. Companies had to take successive price hikes as the sector was hit hard by higher inflation levels.

This was one factor dragging Godrej Consumer lower, among other FMCG companies.

However, that was past. At present, companies are expecting demand to improve in the second half of this year.

FMCG companies including Godrej Consumer, Marico and Dabur said demand across categories in the continued to remain soft on account of continued impact on unprecedented inflation. But they expect inflation to moderate and also get support from the festive season.

Comparative Analysis

Here's a table comparing Godrej Consumer with its peers on various metrics for financial year 2022.

Company	Godrej Consumer	Dabur	Emami	Galaxy Surfactants	HUL
ROE (%)	17.0	22.1	44.3	18.3	18.4
ROCE (%)	18.7	26.8	33.7	19.5	24.8
Latest EPS (Rs)	16.8	9.8	18.9	80.8	39.0
TTM PE (x)	49.5	54.9	25.7	37.2	66.6
TTM Price to book (x)	7.1	11.1	10.0	6.4	11.9
Dividend yield (%)	0.0	1.0	1.6	0.6	1.3
Industry PE (x)	58.7
Industry PB (x)	11.6

Data Source: Ace Equity, Equitymaster

How the Stock Has Performed in 2022

In the past five days, Godrej Consumer share price has fallen 8% while in the past one month, it has fallen 12%.

On a YTD basis, shares of the company are down 14%.

Godrej Consumer has a 52-week high quote of Rs 1,073 touched on 14 October 2021 and a 52-week low quote of Rs 660 touched on 7 March 2022.

One more reason behind the decline could be FII selling. Foreign investors (FIIs) have sold shares of Godrej Consumer for the past four consecutive quarters.

Meanwhile, mutual funds have added exposure to Godrej Consumer for the past four quarters.

To know more, check out Godrej Consumer's latest shareholding pattern.

About Godrej Consumer

Godrej Consumer Products is one of India's leading home-grown household and personal care company. It has presence in regions like Indonesia, Africa, Latin America, UK, among others. Its domestic operations contribute 53% to the top-line.

The company is driven by a 3x3 strategy which focuses on three business categories (personal care, hair care and home care) across three geographies (Asia, Africa and Latin America). Its portfolio is spread across Home Care, Personal Wash, Hair Care & other categories.

It's the market leader in hair colors, household insecticides and liquid detergents, while, in soaps segment it is the second largest player in India.

To know more, check out Godrej Consumer's financial factsheet and its latest quarterly results.

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