Even if GCPL spends part of the profits to shore up advertising, the business might enjoy a solid earnings rise of 25-30% in the following few quarters, experts said.

Godrej Consumer Products Ltd (GCPL) is a benefactor of the dramatic decline in prices of palm oil, a crucial raw material for the fast-moving consumer goods (FMCG) industry. This would assist in margin expansion. Analysts at Motilal Oswal Financial Services believe that even if GCPL spends part of the profits to shore up advertising, the business might experience a solid earnings rise of 25-30% in the following few quarters.

In the December quarter, the consolidated Ebitda (earnings before interest, tax, depreciation, and amortization) margin rose to 21% after stagnating at about 17% in the preceding three quarters.

Likewise, the percentage of GCPL’s India business has expanded from 52% in FY17 to roughly 57% in FY22. This augurs well since the vertical is a high-margin one. GCPL India’s operational Ebitda margin in the December quarter was 27%. In contrast, the statistic in the GAUM (Godrej Africa, USA, and Middle East) and Indonesia section was 13% and 20%, respectively.

Also, the return on capital employed in GCPL’s India business is comparatively higher, point out Motilal Oswal analysts. “If operations in Africa and Indonesia were to even remain at current levels, an improvement in the India business could improve the company’s overall margins, return ratios, and net working capital,” they added.

International operations are being hit by macro challenges such as currency devaluation, therefore, denting profitability. The African business was under pressure but the firm forecasts margin growth year-on-year and sequentially from the March quarter.

Also, a major reversal in the Indonesian company is vital to improving the emotions of investors in the stock. The segment’s revenue has fallen on a year-on-year basis consistently for the last six quarters.

As things stand, shares of GCPL have recovered by roughly 38% from their 52-week low of ₹660.05 each set in March.