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

Ladies and gentlemen, good day, and welcome to the Godrej Consumer Products Limited Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call over to Mr. Vishal Kedia. Thank you, and over to you, sir.

Good evening to all. I welcome you to the conference call for GCPL. We have with us Mr. Aasif Malbari, MD and CEO; and myself, Vishal, Interim CFO for the company. We will start with opening remarks from Aasif, post which we will move to the Q&A segment. I hand over the call to Aasif now.

Good evening, everybody. '27 has been a quarter of strong broad-based performance for Godrej Consumer Products Limited, fully aligned with our expectations and strategic priorities. We delivered strong broad-based underlying volume growth across India, Indonesia and Africa despite subdued monsoon conditions in India, while being supported by tailwinds in Indonesia. At a consolidated level, revenues grew 19% year-on-year, 15% in constant currency terms with underlying volume growth of 8%. EBITDA grew 12%. Net profit grew 14% to INR 523 crores. This marks our second consecutive quarter of high teens revenue growth with high single-digit underlying volume growth and double-digit profit growth. Our stand-alone business delivered 13% sales growth performance, driven by 7% underlying volume growth. This is despite an estimated 150 bps impact from trade inventory correction in the quarter. While this has been a modest near-term impact in terms of the correction we've done, we believe that maintaining healthy channel levels is important for operational excellence and sales team to remain focused purely on offtake. Stand-alone EBITDA was mildly impacted due to this correction. In Home Care, we delivered 19% value growth led by strong performance in air fresheners and home care liquids. Alongside that, we gained market share in household insecticides. This is encouraging and indicates that the actions we have taken across brands are beginning to deliver. Our electric portfolio delivered sequentially improving performance, supported by the new 6 minutes campaign, while incentives continue to scale strongly. Godrej Fab maintained a strong double-digit growth trajectory and continued to strengthen its market position. Godrej Spic, which was scaled nationally during Q1, continues to witness healthy consumer repeat and sequential growth with significant distribution headroom still available. During this quarter, we launched Godrej Rizz in selected markets across West and South India. We also launched Godrej Zap, our entry into stain removers online. Both these new launches have been received well. Personal Care delivered value growth of 8%. Soaps remained stable despite significant price increases and grammage reduction. although with a favorable comparator. Our premium liquids continue to do well. Cinthol body wash continues to scale sequentially, while Muuchstac face wash progressed in line with our business plan. Actually, it progressed beyond our business plan. Hair Colors maintained its growth momentum and continues to gain market share across our key bets. Perfumes and deodorants delivered strong double-digit growth, supported by healthy underlying volume growth in deodorant and continued momentum in perfumes and EDP. Our international portfolio delivered strong growth. In Indonesia, sales grew 20% with underlying volume growth of 8%. EBITDA grew 12% with LPG prices doubling. However, we have benefited from El Nino tailwind in Indonesia, leading to increased mosquito infestation. With our future portfolio of LV, Pocket, et cetera, we have seen tremendous success with double-digit underlying volume growth sustained. GUAM delivered another outstanding quarter. Sales grew 40% in INR terms and 23% in constant currency terms, supported by underlying volume growth of 16%. EBITDA grew 43%. This performance was broad-based across categories and geographies. More importantly, GUAM has now delivered 7 consecutive quarters of double-digit top line growth and 11 consecutive quarters of double-digit bottom line growth. This reinforces our confidence that the improvements in the business is structural. We continue to be focused on the larger opportunity that the continent offers. The launch of [indiscernible] was well received and is having good early traction. The input cost environment remained significantly challenging through the quarter. Inflation intensified across crude-linked derivatives, palm oil and commodity inputs. This led to one of the highest inflationary impacts in the last many years. Due to the nature of our portfolio in India and Indonesia, the impact of such inflation has been approximately -- has been high single digit. Despite a significant portion of our portfolio being price point pack, we have taken stringent pricing actions combined with large cost savings program and media and trade level investment optimization. We strive to keep the share of voice range bound. We have also increased the salience of our digital investments, which has given us much higher ROI. We will continue to take calibrated pricing actions significantly in soaps and liquid detergents, where the cost impact is large and the margins even today are below normative levels. With continued cost savings and future pricing, we will ensure that we continue to invest behind our growth drivers while managing to deliver on our stated profit growth guidance. We continue to hold our FY '27 guidance, high single-digit underlying volume growth in stand-alone and double-digit revenue and EBITDA growth at a consol level. With revenues running ahead of plan through the first half, we remain on track to deliver with the confidence to exceed it in certain 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. Our measure of outperformance remains double-digit UVG and profit growth. Thank you.

We now open the call for questions.

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

My first question is when the recent management transition happened, a lot of imperatives and priorities were shared with us quite candidly. I understand when any management transition happens, change in numbers will take time. So my question is not at all on numbers. My question is on the slightly softer aspects which you had mentioned. First, of course, was the digital advertising capability where Nisa in the analyst meet had said that you are quite low in terms of percentile. What are the initial changes which have happened without getting into numbers if you don't want to? Second is in terms of the hustle to get daily targets, market share, et cetera, what has changed? Again, no numbers needed. And third is in terms of HI new molecule in the advertising message or overall communications, is there any change? I haven't seen it. And I may not have noticed the ad, so that I'm not the right person. But you could address these 3 aspects. That is my first question.

Yes. Thanks, Abneesh. So I think, Abneesh, I think the first one in terms of -- or let me put it this way. I did share the direction, I did share the strategy. I did share what are the multiple changes which we are looking at. And all of them have been changes which are well thought through. Over the next few months, at regular interval, we'll kind of share as to what progress we are making against some of them. Some of these changes, which we spoke about are structural, they result in, I would say, change in the ways of working. It does require rebooting in terms of certain teams kind of coming on board. And they are all kind of being -- they are all being put in place as we speak. The first one in terms of digital advertising, I think this is a clear direction which we've taken. We understand that we do a reasonable amount of stuff when it comes to digital advertising, but we are not top percentile. Again, it doesn't happen overnight. But building in those capabilities, making those shifts, ensuring that we move significantly to the world of influencers, digital, et cetera, is something which we started. And I do see ourselves kind of moving and getting into a top percentile over the next few quarters. But -- and it's again not to do with what percent of spend moved. It is more to do with capabilities and do we believe that in each of the categories, we are in the top percentile. And we know what is best-in-class and how to get there. So I do see in a few quarters getting there, but it's not about percentage and spend. So I think that's the first one. When it comes to operational excellence, we are decisively moving and we understand where the rhythm should be built, what should be corrected and how it should be corrected. And I think some of the corrections which we've started to kind of take in terms of trade inventory, et cetera, is purely with that in mind because you need the engine to kind of fire where the entire sales team is focused on offtake and primary is completely run without any human touch. And for that, you bring down the inventories to completely system-defined inventories and move that way. So we are making decisive shifts on this, and I do see ourselves getting into a rhythm of operational excellence quite soon. Coming to the new advertisement on HI, the product is the RNF product, the ad also kind of calls it out in the ad. The ad is an ad, which is significantly clutter-breaking and we do believe that this will give us a bigger impact in terms of reach.

Sure. In India though, is there any update you want to add, any time lines you're looking at? I know these [Technical Difficulty] time lines.

Sorry to interrupt Abneesh sir, your audio was not clear in between, if you can repeat the questions.

Is the audio clear now.

Yes, sir.

Yes. Abneesh, I think you are referring to India CEO is just what.

Yes, yes. Any time line are you looking for any specific skill set, for example, digital advertising, currently, you think that there is a -- there is a gap. Sales -- daily sales achievement, there is a gap. So are you looking at specific skill sets also, of course, at senior levels, it will be well grounded. But if you could update on time line and any skill set you're looking at?

No. So I think we are on to the process to bring in the India CEO. This is an important and a key hire for us and hence, to ensure that we get the right person, both in terms of Godrej values and second in terms of entrepreneur mindset is what I would kind of call out. And yes, frankly, I'm not too kind of worried about a few weeks here or there in terms of appointment to get the right person is more important. And yes, we are running through that process in a fairly robust manner.

And the last quick question -- last quick question. Any update on milestone where you have reached in terms of your new product in the bathroom cleaning space and pet food, any further progress? I understand still in pilot mode. But if more success you have seen in any geography and how many states you have expanded, if any, beyond Tamil Nadu?

Sure. No. So we've gone national on Spic. So we were quite happy with the success which we had in TN. We reached our milestones in terms of repeat. We do believe the brands kind of actually met its action standard in TN, and we have moved the brand to national. So quite happy with Godrej Spic, which is the toilet cleaner. When it comes to pet care, I would say there has been a lot of learnings in terms of how this category works and initial acceptance of product, et cetera, has kind of been observed. I would kind of possibly, Abneesh, take a quarter, next quarter when we speak, I would kind of, I think, be in a better position to kind of give you exactly how are we thinking of this business and what kind of milestones I would be looking at.

[Operator Instructions] Our next question comes from the line of Siddhesh Deshmukh with IIIFL Capital.

This is Percy here. My question is on the Personal Care category. The growth there in value terms is 8%, volume probably significantly lower than that. So what is really sort of stopping us to perform better in this category? Is it -- first of all, is it that a larger part of the trade inventory correction was in this category? Is that one of the reasons? Or if there is some other reason? I mean, why is it that -- I know it will always be a slower growing category because soaps is well penetrated. But given that there is a pricing also probably into this, any color on where sort of are the gaps or where sort of what parts of the portfolio are weak, which can be plugged over the next few quarters?

Yes. Thanks, Percy. So I think, Percy, you're right. I think directionally, typically, soaps is something which has seen a correction in terms of trade inventory and that has had an impact. And normally, trade inventory does kind of build more in terms of the large SKUs. So I think that has been one of the reasons. Having said that, soaps is also kind of going through its fair share of, again, price volume recalibration with what's happening in terms of commodities. As I mentioned, both in soaps and detergents, I think there has been a reasonably aggressive price increase, which the entire industry and we have taken. And we still are not at normative levels in terms of margins. So -- and normally, when this kind of cost increase happens, you see rounds of price increase happening. So -- and these are the times when you start seeing even wholesale and other inventory kind of go down. So I think both these factors have kind of contributed to it. When it comes to Hair Color, we've kind of had a very good quarter in terms of market share gains. So yes, I think that part of the portfolio has kind of done really well. Yes. So I would quite happy with the way the numbers have kind of fallen in place in Personal Care because of these reasons.