Q2 Update: Godrej, Marico See Steady Consumption Rebound But Input Price Pressure Hurts

Godrej Consumer Products Ltd. and Marico Ltd. saw demand recover at a steady pace in the second quarter even as rising commodity costs continue to hurt.

Volumes grew across home to personal care categories in the quarter ended September, the two consumer goods makers said in their quarterly updates on Tuesday. But they expect margins to contract citing volatility in prices of copra to crude oil.

The updates underscore a recovery in consumption. That came as economic activity rebounded after states eased curbs imposed to contain a deadly second wave of the Covid-19 pandemic.

Headline Growth

“During the quarter, demand trends in our categories across the key countries we operate in remained steady,” Godrej Consumer, the maker of Good Knight and Hit insect repellents, said.

GCPL expects domestic sales to grow in “close to double digits” in the July-September period, driven largely by a strong volume growth and calibrated price increases.

The Godrej Group company saw a broad-based sales growth in home care and personal care.

Marico said revenue growth in the reporting quarter was in the low twenties. On a two-year CAGR basis—a measure that strips out volatility of the pandemic-hit FY21—volumes grew close to double digits.

Marico said Parachute coconut oil grew in line with medium-term aspirations to grow 5-7%, while value-added category posted "double-digit volume growth".

“In the India business, we witnessed healthy consumer sentiment across categories. Discretionary categories and out-of-home consumption visibly picked up. Premium personal care portfolios grew handsomely, albeit on a low base,” said Marico, adding the digital-first brands, Beardo and Just Herbs, performed in line with expectations.

Saffola Foods, too, continued to “grow smartly” and remained on course to clock Rs 500 crore in revenue in FY22.

Edible oils, however, disappointed. According to the company, the category had a muted quarter, largely due to volatility in edible oil prices that led to trade destocking and lower in-home consumption.

After a lukewarm response to Saffola Arogyam Chyawan Amrut, Marico launched Saffola Immuniveda Chyawanprash during the quarter. The product is now available across e-commerce, modern (hyper and supermarkets) and general trade (mom-and-pop stores) channels all over India, as well the company’s Saffola online store.

Margin Pressure

For both the companies, input prices remain a matter of concern. GCPL and Marico expect operating margins to contract during the quarter driven by a lag between the rise in input costs and increase in retail pricing.

Among key inputs, Marico said copra prices fell further, crude remained firm, while edible oil prices oscillated at higher levels.

“Gross margin is expected to improve marginally from the previous quarter but will be under pressure on a year-on-year basis due to much higher input costs,” the company said. “Operating margin is also expected to contract on a year-on-year basis … As a result, the company expects modest bottom line growth in the quarter.”

International Business

Citing challenging macroeconomic variables, a gradual recovery in air fresheners and high competition in wet wipes, GCPL expects a marginal decline in Indonesia constant-currency sales.

The company’s Africa, U.S, and Middle East units are expected to show growth momentum in countries of operations, with a likely constant-currency sales growth in mid-teens. “Here too, we expect our two-year CAGR to be in the double digits.”

It projected its sales growth in Latin America and the SAARC region to be soft.

Marico, too, delivered double-digit constant currency growth in international business driven by positive trends in all markets, except Vietnam. “Vietnam, where a large part of our portfolio is of a discretionary nature, was in the grip of a severe Covid-19 surge and stringent lockdown restrictions.”