Godrej consumer products limited share delivered a return of 15% over last week

With household and personal care making up 50% of FMCG sales in India, the fast-moving consumer goods (FMCG) industry is the fourth-largest industry in the country. Due to increasing digital connectivity in urban and rural regions (through e-commerce portals), which is driving the demand for FMCG, the FMCG market in India is predicted to grow at a CAGR of 14.9% to reach US$ 220 billion by 2025 from US$ 110 billion in 2020. Additionally, investments in this industry draw investors since there is year-round demand for FMCG products. From April 2000 to June 2021, the sector experienced a massive FDI inflow of US$18.59 billion.

Godrej Consumer Products Limited (GCPL) has established itself as one of India’s top Fast Moving Consumer Goods (FMCG) businesses. Household insecticides, soaps, hair colors, liquid detergents, and air fresheners are the company’s five product categories. Through numerous acquisitions made over the years, the corporation has developed a significant global footprint. Godrej Consumer Products Limited is one of the biggest companies in the emerging markets for hair care and home insecticides.

The Godrej Consumer share price on July 1st was Rs 757, and the closing price yesterday (6th July) was Rs 878.3, representing a 15% return in a single week. Several factors could account for such a sharp shift in investor sentiment, including robust expectations from Godrej consumer share in Q1FY23, changes in industry trends, or a recent market update. Let’s try to decode it here.

On the technical charts, the Godrej consumer stock has broken out from its bullish inverted head and shoulder pattern on the daily line chart. The Godrej share price breakout is accompanied by rising volume. The Godrej consumer stock is trading above its 20- and 50-day EMA. The Godrej share price has also broken out from the downward sloping trend line on the weekly chart. A higher top and higher bottom formation on the daily chart is visible.

Moreover, the FMCG sector has started outperforming. Indicators and oscillators have turned bullish on both the daily and weekly charts.

Expectations for Q1FY23 from Godrej Consumers product limited

Godrej Consumer Products Ltd shares surged after the company announced that it expects early double-digit sales growth in India in Q1FY23. In India, the company expects early double-digit sales growth on a high base during the quarter, with the 3-year compound annual growth rate (CAGR) remaining robust and in the early double-digits.

Additionally, Godrej Consumer Products Limited stated in its quarterly update that some of its short-term issues, such as ongoing, unprecedented global commodity inflation and the performance of its Indonesia business, which were highlighted in the previous quarter, continued to play out in this quarter as well, having an effect on consumption and margins.

While Godrej Consumer products limitedsaw a 7% growth in net sales to Rs 2,894.15 crore in Q4 FY22 compared to Q4FY21, the company’s net profit decreased 0.7% to Rs 363.24 crore on a consolidated basis.

Business Outside India

Godrej Consumer Products Limited anticipates a high single-digit sales decline in Indonesia as hygiene performance declined following COVID-19 and there is a significant hygiene component . Godrej Consumer Products Limited anticipates double-digit sales growth in Africa, the United States, and the Middle East while continuing to emphasise generating sustainable, profitable sales growth. In addition, the company forecasts high teens in constant currency revenue growth for its Latin American operations.

“At a consolidated level, we continue to leverage our category and geographic portfolio. We expect to deliver high single-digit sales growth and a 3-year CAGR in double-digits. On the profitability front, we expect lower year on year EBITDA margins during the quarter. This is due to input inflation, upfront marketing investments to drive category development, and weak performance in Indonesia. However, with inflationary pressures abating and a significant correction in palm oil derivatives and crude oil, which are some of our key raw materials, we do expect a recovery in consumption and gross margins in the upcoming quarters, “the consumer goods maker said in a statement.

Indian FMCG sector trends: Good Monsoon & fall in commodity Inflation

The FMCG sector in India remained weak throughout the quarter. It was nonetheless severely impacted by rising inflation rates brought on by geopolitical concerns, which affected volumes and caused subsequent price rises. Growth in rural markets was slower in comparison to urban markets.

Additionally, the recent drops in commodity prices and the expected strong monsoon are promising news. Despite the generally non-discretionary mass pricing of its portfolio, the corporation claimed that it was still competitive.

As the price of crude palm oil continued to decline globally, shares of Godrej Consumer Products and Britannia Industries soared in trading. The resumption of Indonesian exports as well as worries about the state of the world’s demand have caused a more than 35% decline in the price of crude palm oil futures on international exchanges in recent weeks.

According to analyst reports, palm oil prices are currently trading close to their six-month lows as a result of massive inventories in the Indonesian market and import delays by important clients like India and Pakistan. Since crude palm oil is a crucial raw ingredient, the steep drop in price is good news for home manufacturers of fast-moving consumer items.

Most FMCG stocks experienced a sharp decline earlier in the year as a result of an increase in palm oil prices following the Russia-Ukraine war and Indonesia’s impromptu export ban. Investors feared that the input price inflation that has been affecting these companies over the past year would worsen.

Conclusion

Conclusion

The reduction in palm oil prices, good monsoon & investor expectations of robust financial performance in Q1FY23 led to the surge in Godrej share price. On the charts, the stock was in a downtrend from September 2021 till March 2022. Over the last two months it showed signs of a trend change with higher highs and higher lows. In the short term (next three months), the stock is likely to head higher to levels of 950.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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