Godrej Consumer Products Limited (GODREJCP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Godrej Consumer Products Limited Q1 FY '27 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Kedia from Godrej Consumer Products. Thank you, and over to you, sir.

Good afternoon, and welcome to the conference call for Godridge Consumer. We have with us Sudhir Sitapati, and Aasif Malbari. We will start with opening remarks from Sudhir. And post that, we will open the floor for questions from everyone. Now I will hand over to Sudhir for his opening remarks.

Q1 FY '27 has been a strong start to the year for Godridge Consumer Products Limited. We delivered broad-based growth across India, Indonesia and [indiscernible], building on the conference and strategic direction we shared at our investor meet in May 2026. The operating environment remained challenging through much of the quarter. Input costs were elevated, particularly during the early part of the quarter, and geopolitical developments contributed to significant volatility in crude and other commodities. Despite this backdrop, our underlying volume-led momentum strengthened sequentially, reflecting the resilience of our categories, the strength of our brand and most importantly, the quality of our execution. At a consolidated level, revenues grew 19% year-on-year with underlying volume growth of 9%. EBITDA grew 14% with margins at 19% Net profit grew 11%, reflecting healthy underlying earnings quality even as margins absorb some near-term commodity pressure. This was on the back of a strong broad-based performance in India and Indonesia. In India, Indonesia coming back to stable book and an exceptional performance in Africa driven by FMCG expansion. While we are pleased with the financial performance this quarter, we are even more encouraged by the structural changes but are continuing to take place across our company. Over the last few years, we have been working towards three important objectives. The first is to build the capability to deliver consistent double-digit volume growth backed by next generation of growth engines while restoring competitiveness in some of our most important core categories. The second is to turn around our Africa business and reposition it as a meaningful driver of profitable growth. The third is to decisively turn around HI in India. Q1 provides further evidence we are making meaningful progress against each of these objectives. Our first objective is to move towards consistent double-digit volume growth. This quarter, consolidated underlying volume growth reached 9%, supported by increasingly broad-based momentum across geographies and categories. Our speed boats, Godrej Fab, GK Incentec and Godrej Aer globally continue to grow strongly and are becoming increasingly meaningful contributors to the overall company. Our new entries in toilet cleaners, body wash, face wash and pet care are all showing strong progress. These businesses are meeting their stated milestones, and we are encouraged by the quality of consumer traction and execution that we are seeing. These businesses are still at an early stage relative to their long-term potential. However, that progress gives us increasing confidence that we are building the next set of scalable growth opportunities for GCPL. Continuing our progress in expanding into far growing categories, we are pleased to announce the launch of Godrej Rizz. Our entry into liquid dishware. Liquid dishwash is a INR 2,500 to INR 3,000 crore category, which is growing in strong double digits, where consumers are upgrading for bars to liquids. We are launching Godrej Rizz select states and are confident of our ability to delight consumers with Godrej Rizz as we have done successfully with our other innovation. Based on the progress we are seeing across these businesses, we believe we are now a few quarters away from consistently delivering double-digit underlying volume growth. Our second strategic objective has been the turnaround of GAUM. Our GAUM business has delivered an outstanding quarter. This performance was led by our FMCG portfolio, where we doubled media investment alongside continued strength in hair fashion across markets. We successfully scaled air freshners across the GAUM region, and the initial pilot of incense stick in Nigeria has received strong consumer feedback. There has also been a structural movement in EBITDA from high single digit to a consistent mid-teens level, and we are confident of holding this going forward. More importantly, the Africa performance is no longer limited to a single quarter. We have now delivered several successive quarters of improvement in both top line growth and profitability. The business is benefiting from portfolio simplification, stronger execution, improved cost discipline and increased investment behind our priority brands and categories. Our third strategic objective has been the turnaround of India [indiscernible]. Household insecticides recorded an important milestone during the quarter. After almost a decade, we gave overall market share in the household insecticide category in Q1 FY '27. This improvement is consistent with the actions we have been taking to win in this category. While one quarter does not constitute a trend, the overall share gain is an encouraging indication that our strategy in household insecticide is beginning to deliver the intended results. We remain focused on sustaining this momentum through superior products, sharper consumer propositions, disciplined execution and continued category development. This year has been a year of volatility. In Q1, we experienced significant input cost inflation and instability with LPG prices going up 3x and similar increases in other costs. This especially impacted India where the cost impact was close to 6% on the business. Despite this, we delivered a double-digit EBITDA growth. While prices have cooled off from the highs, going ahead, we anticipate volatility to remain with both rude and palm being unstable and el nino impacting demand across a few categories. Our response will remain consistent with our established approach to navigating commodity cycles, calibrated pricing actions, strong delivery and cost saving programs and prudent media optimization. We remain mindful that el nino conditions heightened weather volatility across our key markets, with the potential to disrupt agricultural output and rural demand. Though our geographically diversified sourcing and portfolio provide meaningful resilience against such volatility, and as such, we don't foresee any major impact. With revenue growth tracking ahead of our original expectations and input costs beginning to ease, we enter the remainder of FY '27 with increased confidence. We remain firmly on track to deliver our guidance for the full year with the confidence to exceed the same in select areas. We remain confident in the resilience of our portfolio, the strength of our brands and our ability to deliver sustained profitable growth going forward.

[Operator Instructions]The first question comes from the line of Abneesh Roy with Nuvama Wealth Management.

My first question is on Dishwash. So attractive [indiscernible], so if you could tell us, generally, you come with disruptive pricing. And if you could tell us here also have you managed to do that? And in terms of quality, is it comparable to the current player? Second, which markets reached at the online every time code, we did not get elevate. If you could tell us which market you have started with? I projected is again Tamilnadu or South India. Second is, you have tried Dishwash earlier to Protect -- Godrej Protect. So any learnings from there? And do you see this as a golden opportunity given one large multinational players seems to have temporarily [indiscernible]? And once they come back, will it be enough opportunity for you to see that opportunity? That is my first question.

I think, Abneesh, on Dishwash, we haven't yet physically launched Rizz yet. We are just in the process of launching it. So we don't want to comment on anything because it will be competitive sensitive. But we thought since this is an opportunity for us to let you know, we thought we'd announce it. But in a few days' time, you'll see it everywhere and the mix is be clear. In general, we end up launching categories, if we have a differentiated product and a good pricing, there seems to be our Home Care [indiscernible] seems to work very well in Fab. It seems to be working quite well in Spic and I'm sure it will work in Rizz, but more about it, Abneesh, when we actually launched in the market. You didn't find it in PIN code because it's not on the market yet.

Understood. And if you could comment on the multinationals that are currently hardly available almost near 0, which has kind of withdrawn. Is that a big opportunity because you tried through Protect brand earlier, right?

See, I mean, on the question of a competitor exiting. I mean, we look at the market in terms of structure of long-term growth and dishwash liquid does have long-term growth potential in it. And we look at differentiated products. So we don't really look at it in terms of -- I mean, in Aero, I don't think that has been the major factor in entering it here. I think one difference between some of our earlier home care launches and our current home care launches is, we do spend a lot more [indiscernible] now on these than we did in the past, and we also typically launch relatively differentiated -- fundamentally differentiated products. So I think that's why this is going to be different from PROTECT.

Understood. Second and last question, on the Spic brand, you sound quite confident and you have taken pan-India. Any initial numbers you can share in terms of the here on e-commerce to commerce, whatever numbers which makes you confident? And generally, when you do well, other players respond. So we have seen that in liquid detergent, you came out with disruptive pricing. Now some of the players are even more disruptive in terms of pricing than you. So can that happen in Spic also?

I mean, look, we can't share numbers, obviously. But our general model is to do a test market if they're happy extent. If they're not happy, we don't usually expand. So the various fact that we've expanded in Spic that means that we are quite happy with it. Then coming to the point on -- what was the second question?

Disruption is there in Spic, has the market...

In some of these categories penetration in India is so low that we continue to look forward to category creation here and Spic also is relatively high urban penetration, but relatively low rural penetration growing reasonably fast. Dishwash still liquid dishwash is pretty low outside SECA penetrations. So the actions that all players in the market can make in general, help us. Fab has also succeeded in growing the market.

Follow-up on that, Sudhir, Fab growth is good on the top line. Currently, inflation is high. Have you managed to cut promotions or do some price increase also here? And has the industry also gave been a manner in liquid detergent?

Yes. Abneesh, we have taken price increase in Fab, but one of the reasons why our India gross margin fall is pretty sharp this quarter is three commodities more than tripled costs which were LPG, Karusel and Lapa which we use in detergents. So I think among all companies in India, we were the one who had the highest impact of raw material cost as LG in particular has been both a cost and availability issue in the quarter. So -- no amount of price increase, especially when you know the short term. So for example, all these three commodity prices have again fallen. Of course, we still have some impact on consumption in Q2 but replacements have not -- I mean, have fallen quite significantly. So one can't fully price for a crisis like West Asia immediately. So one has to take that short-term margin hit, but that's what we have done.

The next question comes from the line of Kunal Vora with BNP Paribas.

My first question is on your Spic board. Your target is to go from 15% to 20% contribution this year. However, in [indiscernible] FY '27, it's increased by 3%, is slightly lower. Based on my calculation, you need to accelerate growth if you were to get to 20% contribution for FY '27. Is it to plan? Or are you seeing any softness? Yes, that's the question.

No, it's going as per plan, broadly speaking. There was a little bit of softness in Aer in India because of fill rate. So in India, the other big story apart from gross margin hit is that our fill rates on LPG-related products fell and Aer has a large component of aerosols. So we think that the savings will go. And you have to remember that the saline goes up every quarter because as the business becomes bigger and bigger every quarter, the growth on that business also contributes to salience 15% doesn't go to 20% in 1 quarter. It each quarter go up 150 bps. So that's what I expect in terms of salience of this business to go up. So I think well on track for our speedboats, which is why we feel we are well on track for the numbers. In fact, probably exceed the numbers that we set for this year.

Understood. So on back line, you made a comment that you expect to exceed full year guidance and select metrics. So what are the metrics on which you are now being more confident and what are the ones which you believe is about it?

We've certainly exceed it on revenue growth pretty significantly. On EBITDA, we may exceed by a little bit the original number that we had set of double-digit EBITDA growth may go up a little bit. It depends a lot. I mean on what happened to commodity, but it may exceed a little bit there. Volume growth also may be in and around or exceed a little bit. Volume growth does come under pressure when you have this kind of pricing. So I would say in most metrics, we expect maybe one metric where we may not exceed this kind of volatility a little bit on cash to get a little squeezed. But I think on most of the metrics, you will exceed.

Understood. And lastly, you mentioned that el nino could impact certain categories, which categories do you see some bridge from el nino and what are the factors to watch out for?

Look, there are positives and negatives to El Nino. Firstly, in Indonesia, we expect a strong positive on household insecticides. In India, probably quarter 2 -- quarter 1 was already June was terrible for household insecticides. So the results we delivered in India with a terrible June with oil rates and extremely high costs. So July also, the first half was quite poor for household insecticides. So household insecticide, if you have a dryer monsoon, we'll get affected but it's likely also to be a warmer winter, which will positively affect HI. So Hi first half will be relatively lower. Second half will be relatively better. Indonesia will be good. I think the good thing about our portfolio now is even when you have a disastrous HI month like June, this portfolio is now diversified enough to manage overall numbers.

The next question comes from the line of Latika Chopra with JP Morgan Chase.

I think you already alluded to HI or weakness in June and some bit of challenge in there. I just wanted to better understand the shape of India revenue growth in coming quarters. You had a win growth of 7%, given what you mentioned on speedboats, it looks like that this number should idly be picking up in subsequent quarters? And given the weakness of HI that still so probably may not be there in the second half. And the second bit was on pricing. 5% at weighted average prices in the current quarter given the gross margin drop that we saw in Q1 was quite steep. How should 1 think about pricing at your end? And what would it imply for the gross margin trajectory for the India business? If you could talk a little about that.

See on volume growth, I think you're right about the fact that while 7% is reasonable it is on the back of June, literally having kind of doing -- June this said, I didn't rain, right? Last year was raining quite heavily in June. So we had like a high double-digit decline in HI. So that in the a significant hit on HI volume. So you're right about the fact that as HI volumes pick and this happens, I think every in a quarter, you're going to have kind of poor HI volumes, but poor number, which used to be negative, is still not turning positive even in a terrible quarter. And then you'll also have a very good quarter. That's the way this moves. So I would say that 7% volume in India is at the lower -- probably at the lower end of the range that we may get. So actually will probably be in and out of maybe 100 bps more than this is round about where we should be in India this year. Every year, we're kind of going up by 100 bps, that's really how we're kind of looking at India business. I think in terms of the gross margins, you've taken up prices by about 5%. We probably will still take up a little bit more, but you see we had a prudent because no costs have come down again. And the last thing you want to do is to take down prices. So it remains a volatile situation until crude prices stabilized. Because as of now, like what do we do, right? Like what do we assume crude at what do we price for? Because right now, consumption may be Brent at [ $950, ] replacement seems to be $84 today. So where we price that is still not super clear. So I know it's not a super clear answer, but frankly, the macros are not super clear right now on commodity costs. Whatever happens, we'll manage in this range of volume growth I think in India, we may be stand-alone double digit or if things go really bad in EBITDA, high single digit. I think consolidated having a lot of tailwinds, it will probably be -- take the overall number higher than what we had anticipated. But let's see how crude and palm behave.

Understood. The second, which was on Africa, you did talk about the stronger growth in FMCG business. But the 25% constant currency growth is still quite high. I just wanted to understand if you could share more color on how the revenue balance of Africa is looking like today? And what is the confidence in what kind of sustainable growth for the full year FY '27 one should work with? And also the investment in this business, is there any influence on margins in the short term?

Yes. I mean, look, Africa has had an exceptional performance. I think there are three reasons. One is I think the Africa continent go through headwinds and tailwinds. And right now, the macro Africa are quite good. Secondly, on our core business of hair attention, I think Aasif and team have done an excellent job in improving operations there because there was a lot of governance, a lot of wasted costs and so on and so forth that has come off. And thirdly, and I think most importantly is that we have made significant progress in FMCG, especially air care in Africa. To give you a perspective, in the last -- in 6 months after launch in South Africa, we had double-digit market share in hair care. So -- and we've seen success in Nigeria, Kenya, now by seeing success in Argentina, Chile, U.S. So we're seeing a lot of fundamental success in FMCG led by HI for Africa.

All right. And sir, a mid- to high teens constant currency growth looks sustainable for this reason for FY '27 rest of the year?

I think for FY '27, rest of the year are possibly so. I would say in the longer term, you may or may not get 17% volume growth may not be what we might sustainably get even with FMCG growth because I told you that there are -- it is a volatile continent. But it will still, I suspect to be much better than what we've had in the past.

And margins, you've been able to hold out -- they were stable. So there is no higher investment-led challenge and margin or anything? Just checking on.

No, there is no impact in Africa. We have significantly increased our advertising spend and still done reasonably well on margins. And actually, when you have a this kind of currency appreciation in the African currency actually, it is margins. So while it's good on top line, it's not so were on bottom line. So I would say it's kind of mid-teens and margin in Africa is perfectly sustainable as FMCG becomes bigger and bigger, it will get more and more -- you'll get some kind of benefits in margin as well.

The next question comes from the line of Arnab Mitra with Goldman Sach.

My first question is on margins. So if you look at the India margins, which are down 450 bps sequentially from what you did in the last quarter, you mentioned the specific commodities, which had spiked have now somewhat pulled down. So if you had to take a view of the current spot prices where they are, how much of margin recovery do you think you can get over the next couple of quarters from where you were in this quarter? Assuming you don't have to take any more pricing?

In the next couple of quarters, we should get back to [indiscernible] margin in India. It's still a slightly complicated period right now because cost [indiscernible] so much that one doesn't know what to do with pricing. So in these cases, there will be circumspect. So in any case of the 500 bps a good part of it will get recovered with the current costs. You just have to wait for this current cost to see where they are, take up some pricing. But look, our target is to be in this '22 to '26 kind of margin for India even in a weak quarter. So that kind of target remains. [indiscernible] an exceptional quarter like Western Asia, some exception [indiscernible], and we have had 2 exceptional quarters in the last 2 years. So, if you look at India margin last -- first half of last year was bad, then we really recovered about in the second half. First half this year is again going to be good and there for two different reasons. But by second half, we'll get back to nominate margins.

Got it. And my related question is on the advertising spend, which has come down a little bit in the last couple of quarters as the gross margin was impacted. So do you think these spends have to be significantly dialed back half? Or -- and is there any risk of keeping the spec low in terms of your growth investments that you are planning to make?

You start our media spend by maybe 7%, 8% this quarter, but we calculate another measure, which is media reach and our media reach is down only 3% from the last year same quarter. And partly because of deflation in conventional media, partly because of superior technology and planning that we use. So if you ask me -- so it is not a massive media cut. But for the ambition that we have in new categories, we will have to increase the media when costs cool down. So I don't think we're underfunding the core. But if, for example, were lower than they are today, we would have probably been a little bit more aggressive in new launches, et cetera. I mean some of these launches that we're doing in this quarter, we may have done in last quarter and we pushed them, et cetera.

So in the core part of the portfolio, what your share of was broadly have been maintained in the last couple of quarters?

Yes. Our share of voice has been maintained. Competitors have also faced the same inflation in each category. So the response has been roughly similar.

That's very helpful. My second question is actually again on Africa. So assuming you're able to hold the constant currency growth at higher levels, given that it's a very complex basket of currencies, the currency tailwind seems much higher than what I had -- we had anticipated. So does this tailwind stay for the entire year based on where currencies currently are in your own assessment?

Arnab, it's likely to stay for another 4 to 5 months. and towards wagon of second half is likely to reduce.

Got it. Great. Understood. And my last question was on soaps. If you could just give some sense of how the volumes and soaps have grown. And is there a positive effect on Softhis year due to the weather like there is on HI, which is a negative effect that you're seeing?

See, we grew soaps volumes in the quarter, firstly, so they were positive. And we expect soaps in this quarter and the next to grow faster. It will still be early single digits. But after a few quarters, actually, we've grown positively on soap volumes.

The next question comes from the line of Anurag Dayal with Phillip Capital.

I have one clarification first. Is there a change in which we report our domestic segment revenue was [indiscernible] sales is around INR 100 crores was clearly INR 1,400 crore. India total INR 2,500 crore. So this means the unbranded exports is virtually nil. So have we plumbed that along with home care and personal care?

That's right. We've done that because we realize when we get into reconciliations every quarter. But this time, you will see that both the category is actually tied up to the total. And we've also restated the historical numbers accordingly.

Sir, what would be the [indiscernible]. Will export on really well, let's say last quarter. So if we remove exports part, especially in home care, then what would be the growth?

I don't think it would kind of materially kind of change. I mean, on kind of [indiscernible] some of this gets netted off at a consol level.

Sure. Second question is on Indonesia. So the jump in on UEG at 10% has been much better than what we were expecting. So could you just give understand what has happened there, which segments have done well and how does [indiscernible] petcare and how we foresee the growth going forward?

I think there are three things on in Indonesia is sitting on a slightly slower base. And even last year, we were unduly worried about the volume is. The second thing is that our Aer business, we have significantly stepped up media on our Aer business there because we realized it was the same model across the world, and we need to step up investments. So that growth rare has stepped up, which I think is sustainable. And I suspect we saw a little bit of the benefit from the el nino already in Q1. We'll see more of it in Q2.