Horse figurines on display. (Photographer: Anthony Kwan/Bloomberg)

Can Growth In Africa, Indonesia Offset Godrej Consumer’s Slowdown In India?

Volumes of Godrej Consumer Product Ltd.’s domestic business grew at the slowest pace among peers as consumption slowed in the world’s fastest-growing major economy. But its businesses in Africa and Indonesia outperformed.

Africa and Indonesia—the Adi Godrej-group flagship’s largest markets after India—contributed 39 percent to its consolidated revenue in the financial year ended March 2019, according to its filings. The revenue from these two markets grew 12.3 percent in 2018-19. That compares with 6 percent growth in its domestic business during the period. Not only that, but it’s also better than Africa and Indonesia’s performance a year ago. Revenue of the two markets had declined 0.5 percent in the financial year ended March 2018.

Domestic demand for consumer goods makers fell as growth slowed in rural areas. Sales of passenger and two-wheelers, too, failed to pick up after the festival season last year, which is reflected in the drop in private final consumption expenditure. A cash crunch among wholesalers due to lack in demand further impacted the India business of the ‘Cinthol’ soap maker. Growth also slowed in two of its largest segments by revenue—household insecticides and soaps.

Vivek Gambhir, managing director and chief executive officer of the company, said the weakness in domestic markets is only temporary. But he bets on Indonesia and Africa.

Growth in Indonesia—that reported 12.6 percent rise in revenue in 2018-19—was led by insecticides business which continued to gain market share and maintained its leadership position, Gambhir said during a conference call after announcing the fourth-quarter results. Focus on marketing and new product development, especially in haircare, fabric care and car cleaners, will further improve the company’s performance, he said.

Revenue from the African market grew 12.2 percent in the last financial year. It, however, fell sequentially as markets in Nigeria were closed for two to three weeks in the run-up to general election.

Gambhir said new launches in dry hair and wet hair products through the key brand ‘Darling’ will “fuel a lot of growth” in Africa in the ongoing financial year. The company’s investments in infrastructure and “talent-building” and inventory cleanup will only boost profitability, he said.

Also read: What FMCG Companies’ Q4 Earnings Indicate About Demand

Analysts, too, agree.

An entry in household insecticides will drive the Africa business, according to Abneesh Roy, senior vice president of Edelweiss Securities. “Localisation of manufacturing will bolster the supply chain,” he said in a research note. The company’s acquisition of ‘Strength of Nature’ brand strengthened its portfolio in the wet haircare segment and its Stella brand (air fresheners) in Indonesia will help improve margin, he said.

Broker Anand Rathi said while Indonesia can grow more than 13-14 percent, a steady double-digit growth is also expected from Africa. With about 40 percent of the company’s consolidated revenue coming from these two markets, they can partially offset the slowdown in domestic market, it said.

Also read: Once Darling India Consumer Stocks Turn Sour as Demand Cools