Godrej Consumer bogged down by currency

Bhavana Acharya BL Research Bureau | Updated on January 24, 2018

At 8.2 per cent, growth in consolidated sales for Godrej Consumer Products (GCPL) is lower in the March 2015 quarter compared to the 12.5 per cent clocked in the December 2014 quarter. The FMCG major, which sees more than 40 per cent of revenues coming in from global operations, was hit by a stronger rupee. Net profits grew 12.4 per cent in the January-March 2015 period over the year ago.

Currency effect

For GCPL, sales growth in the African region has always been strong, thanks to a string of acquisitions and integrating these markets. But a stronger rupee has been bringing growth down for the past few quarters. The March 2015 and December 2014 quarters, for instance, saw African region growth at a good 23 and 36 per cent. But accounting for currency movements, growth dropped to 14 and 30 per cent.

GCPL's Indonesia business also saw sales decline after factoring in currency movement in the March 2015 quarter. The African region and Indonesia account for three-quarters of GCPL's international operations.

European operations too suffered a similar fate; but the region finally pulled out of the slump it was in and sales have actually grown in constant currency terms. An improvement also came about in Latin America. Sales growth in this region has held above 25 per cent for the past five quarters in constant currency terms, but crashed to less than 10 per cent after accounting for currency depreciation. However, the depreciation has let up slightly in the past two quarters – from a decline of 4 per cent in the June and September 2014 quarters, Latin American sales has grown 1 and 15 per cent in the December 2014 and March 2015 quarters.

This improvement in European and Latin American sales boosted overall international sales; from a low 2 per cent growth in the September 2014 quarter, international sales grew a good 7 per cent in the March 2015 quarter. GCPL also improved profit margins across regions, through a mix of price hikes and benefiting from economies of scale by integrating its operations across countries within Africa and Latin America.

Domestic promise

Meanwhile, GCPL clocked a healthy growth in domestic operations thanks to a revival in its key household insecticides segment as well as soaps. Rural growth was also strong for the company, especially in products such as Good Knight Fast Card. In hair colour, the company’s dominant market position has helped it maintain double-digit growth across quarters even as consumer discretionary spending waned.

Lower input prices such as palm oil and packaging, as well as cost efficiencies in global operations helped GCPL improve operating profit margins to 18.5 per cent in the March 2015 quarter compared to 17.4 per cent in the year-ago period. Profit margin improvement is likely to persist with the benign input cost scenario.

Published on April 29, 2015

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