500% Divided, Flat Q3, Shares Down 1%: Why This FMCG Major Still Gets a ‘BUY' Rating from Analysts?

Godrej Consumer Product Limited (GPCL), one of India's top FMCG giants, reported lackluster Q3 results on Friday, January 24. The maker of popular brands like Cinthol, Goodnight, and Hit posted a 14.3% year-on-year (YoY) decline in net profit for the quarter ended December 2024.

Despite weaker-than-expected Q3 performance, the company announced a dividend payout for investors. While the stock has seen muted market performance, leading brokerage firms still see upside potential and maintain a positive outlook. The company attributed its slower revenue growth to high palm oil prices, grammage cuts, and trade destocking, along with an overall macroeconomic slowdown.

GPCL Q3 Earnings Fall Short of Expectations

FMCG major GPCL reported a 14.3% year-on-year (YoY) decline in net profit, which stood at Rs.498.3 crore for the third quarter ended December 31, 2024, compared to Rs.581.1 crore in the same period last year.
Despite the profit dip, the company's revenue from operations saw a modest 3% increase, reaching Rs. 3,768.4 crore, up from Rs. 3,659.6 crore in the previous fiscal's corresponding quarter.
However, EBITDA margins shrank to 20.1%, down from 23% in Q3 of the last fiscal year, due to cost pressures and margin contraction.

Godrej Consumer Interim Dividend Details

Godrej Consumer has announced an interim dividend of Rs. 5 per share (500% on equity shares with a face value of Re. 1 each) for the financial year 2024-25.
In a regulatory filing, the company stated: "The Record Date for determining eligible shareholders is Monday, February 3, 2025. The dividend will be paid on or before Sunday, February 23, 2025."

Godrej Consumer Share Price Target

Shares of Godrej Consumer Products Ltd. (GCPL) traded in the red today, declining 0.83% to Rs. 1,118.90. Over the last five trading sessions, the stock has depreciated by 2.28%, while in the past six months, it has lost nearly 24% of its value. Despite the weak Q3 performance, brokerages remain optimistic about the stock's long-term prospects. Philip Capital reaffirmed its 'BUY' rating, stating, "We believe the weak Q3 performance is temporary. GCPL's growth outlook remains strong, driven by product innovations, increased A&P spending, niche diversification, and aggressive rural distribution expansion. The success of its new HI (Home Insecticides) molecule could act as a key re-rating catalyst. We maintain our BUY rating with an unchanged target price of ₹1,420, valuing the stock at a two-year forward P/E of 51x (slightly below its recent peak). Any correction due to weak Q3 results provides a good entry point."

Nuvama Institutional Equities also retained a 'BUY' rating but revised its target price downward, citing inflationary pressures. "Given steep inflation in palm oil derivatives and an urban consumption slowdown, we are cutting our FY25E/26E/27E EPS estimates by 5.6%/9.1%/7.4%. As a result, we are revising our target price to ₹1,462 from the earlier ₹1,600 while maintaining our 'BUY' rating."

Outlook for the Next Quarter

According to Nuvama Institutional Equities, "The pricing growth in Q4 FY25 is expected to outperform Q3 FY25. The company anticipates that overall volumes will recover over the next two quarters, though Q4 FY25 is not expected to show the same level of volume growth as H1 FY25. The company projects an EBITDA margin between 22-26% for FY25, with the possibility of the lower end of this range in FY26, assuming stable raw material costs. Margins in soaps are expected to improve from H1 FY26, particularly due to the potential for two rounds of price hikes. However, the company is experiencing softness in the premium segment, especially in urban modern trade. To optimize return on investment (RoI) in GT distributors, it plans to reduce inventory in Urban GT, particularly in metropolitan areas. The outlook for Africa looks more promising, with a better margin picture expected from Q4 FY25."

About Godrej Consumer Products Ltd.

Godrej Consumer is one of India's leading FMCG (Fast Moving Consumer Goods) companies. Established in 2001 as part of the Godrej Group, GCPL operates in the home care, personal care, and fabric care segments, manufacturing and marketing a wide range of products across categories like hair color, soaps, detergents, air care, and home insecticides. Some of GCPL's most popular brands include Good Knight, Cinthol, Hit, and Ezee.