In the fourth quarter of FY25, Godrej Consumer Products made a notable return to profitability, yet its stock experienced a dip of 3.14%, reaching an intra-day low of ₹1,211.50. The company reported a profit before tax of ₹670 crore, reflecting a 4% decrease compared to the same period last year. The ongoing pressures on profit margins and challenging demand conditions in India have raised concerns among investors, particularly due to rising palm oil prices, which have surged over 50% and are negatively affecting EBITDA margins.

Key Investor Concerns

Margin Pressures Persist

According to insights from Motilal Oswal, Godrej Consumer is facing significant margin pressures that are expected to endure. The company’s higher tax liabilities have negatively impacted its net profit, which saw a 25% year-on-year decline to ₹430 crore. Notably, gross margins have contracted by 360 basis points to 52.5%, while EBITDA margins have decreased by 140 basis points to 21.1%. This decline is attributed to a 1% increase in advertising expenses and a 9% rise in other costs. For FY25, net sales increased by 2%, while EBITDA and adjusted profit after tax saw declines of 2% and 4%, respectively.

Softer Domestic Demand

Nuvama also highlighted that the company’s volume growth within the Indian market came in lower than anticipated. The 4% year-on-year growth in the India business fell short of Nuvama’s estimates, signaling softer domestic demand. Additionally, Godrej’s consolidated gross profit margin decreased by 362 basis points to 52.2%. The reported net profit dropped 8.1% year-on-year to ₹443.3 crore, marking an 11% decline sequentially. Adjusted net profit fell by 9% year-on-year and 11.2% quarter-on-quarter, underscoring persistent margin pressures.

Broader Financial Context

JM Financial reported that Godrej’s profit before tax, excluding exceptional items and foreign exchange impacts, fell by 3% year-on-year to ₹670.8 crore in Q4FY25, down from ₹691.2 crore in the previous year. The company’s tax expenses surged to ₹227.5 crore, marking a 9% increase from ₹208.7 crore in Q4FY24. Additionally, sales from Godrej’s operations in Latin America plummeted by 11% year-on-year. Despite these challenges, the brokerage maintains a ‘Buy’ rating on the stock.

Conclusion

Godrej Consumer Products is navigating a complex landscape marked by rising costs and shifting consumer demand. Investors are advised to stay informed about ongoing market conditions and the company’s financial performance to make educated decisions regarding their investments. The future trajectory of Godrej will heavily depend on its ability to adapt to these challenges while optimizing its operational efficiencies.