Godrej Consumer Products Ltd:Annual Report 2023-24 Analysis

Godrej Consumer Products Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Godrej Consumer Products Limited (GCPL) was established in 2001, though its roots go back much further to the Godrej Group, founded in 1897 by Ardeshir Godrej and Pirojsha Burjorji Godrej. GCPL was spun off as a separate entity to focus on the fast-moving consumer goods (FMCG) sector.

Headquarters Location and Global Presence #

GCPL’s headquarters are located in Mumbai, India. The company has a significant global presence, with operations and a strong consumer base across Asia (Indonesia, India), Africa (South Africa, Nigeria, Kenya), and Latin America (Argentina).

Company Vision and Mission #

• Vision: To be an emerging markets leader in personal and home care.
• Mission: To delight consumers with innovative, superior quality products at affordable prices and to be an employer of choice.

Key Milestones in Their Growth Journey #

• Early Years: Focused on soaps and vegetable oil-based products.
• Expansion into Hair Color: Significant growth in the hair color segment.
• Acquisitions: Strategic acquisitions in Indonesia (Megasari Makmur Group), Africa (Darling Group, Kinky Group), and Latin America (Argencos) to expand geographic reach and product portfolio.
• Innovation and R&D: Investments in research and development to create new and improved products.
• Sustainable Practices: Growing focus on environmental sustainability and social responsibility.

Stock Exchange Listing Details and Market Capitalization #

GCPL is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Its stock symbol is GODREJCP. As of October 26, 2023, its market capitalization is approximately ₹123,855 crore.

Recent Financial Performance Highlights #

• Q2 FY24 (Consolidated Results): Revenue from operations increased by 7% to ₹3,603 crore. Net profit increased by 20% to ₹451 crore.
• India Business: Revenue increased by 10% to ₹2,004 crore.
• Indonesia Business: Revenue decreased by 3% to ₹921 crore.
• Africa, USA and Middle East (AUME) Business: Revenue increased by 18% to ₹678 crore.

Management Team and Leadership Structure #

• Nisaba Godrej: Chairperson
• Sudhir Sitapati: Managing Director and CEO
• The company has a board of directors comprised of experienced professionals from various fields.

Notable Awards or Recognitions #

• Recognized for its sustainability initiatives and corporate social responsibility programs.
• Awards for product innovation and marketing campaigns.

Their Products #

Complete Product Portfolio with Categories #

GCPL’s product portfolio spans several categories:

• Household Insecticides: Mosquito repellents (Goodknight, Hit)
• Soaps: Godrej No.1, Godrej Cinthol
• Hair Color: Godrej Expert Rich Crème, Godrej Henna
• Air Fresheners: Godrej aer
• Liquid Detergents: Ezee

Flagship or Signature Product Lines #

• Goodknight: Dominates the mosquito repellent market in India.
• Godrej No.1: A popular soap brand known for its natural ingredients.
• Godrej Expert Rich Crème: A leading hair color brand known for its convenience and affordability.

Quality Certifications and Standards #

GCPL products adhere to relevant quality certifications and standards, including:

• ISO certifications for manufacturing facilities.
• Compliance with local and international regulatory requirements.

Recent Product Launches or R&D Initiatives #

• Continuous development of new mosquito repellent formulations with improved efficacy and safety.
• Expansion of the Godrej aer line with new fragrances and dispensing formats.
• Introduction of natural and organic ingredients in soap and hair care products.

Primary Customers #

Geographic Markets (Domestic vs. International) #

GCPL has a significant presence in both domestic and international markets:

• Domestic (India): A large and growing market with a diverse consumer base.
• International: Focused on emerging markets in Asia, Africa, and Latin America.

Major Client Segments (Residential, etc.) #

• Residential: Primarily targets households with its personal and home care products.

Distribution Network and Sales Channels #

GCPL has a wide distribution network that includes:

• Retail Outlets: Supermarkets, hypermarkets, convenience stores, and kirana stores.
• Wholesalers and Distributors: Partners who distribute products to smaller retailers.
• E-commerce Platforms: Online retailers such as Amazon, Flipkart, and its own online store.

Major Competitors #

Direct Competitors in India and Globally #

• Hindustan Unilever Limited (HUL)
• Procter & Gamble (P&G)
• Reckitt Benckiser
• Dabur India Ltd.
• Marico Limited

Comparative Market Share Analysis #

GCPL holds significant market share in key categories such as household insecticides and hair color in India. The company competes intensely with HUL, P&G, and other major players.

How They Differentiate From Competitors #

• Focus on Emerging Markets: Tailoring products to the specific needs and preferences of consumers in emerging markets.
• Affordable Pricing: Offering products at competitive prices to appeal to a wide range of consumers.
• Strong Distribution Network: Leveraging a wide distribution network to reach consumers in both urban and rural areas.
• Innovation: Developing innovative products that address unmet consumer needs.

Future Outlook #

Expansion Plans or Growth Strategy #

• Organic Growth: Expanding its existing product portfolio and geographic reach.
• Acquisitions: Pursuing strategic acquisitions to enter new markets or product categories.
• Digital Transformation: Investing in digital technologies to improve efficiency and enhance customer engagement.

Sustainability Initiatives or ESG Commitments #

• GCPL is committed to reducing its environmental footprint and promoting sustainable practices.
• Focus on using renewable energy, reducing water consumption, and minimizing waste.
• Implementing social responsibility programs to support local communities.

Industry Trends Affecting Their Business #

• Growing Demand for Natural and Organic Products: Consumers are increasingly seeking products that are made with natural and organic ingredients.
• Rise of E-commerce: E-commerce is becoming an increasingly important sales channel for FMCG companies.
• Increasing Focus on Sustainability: Consumers are demanding that companies adopt sustainable practices.

Long-Term Vision and Strategic Goals #

• To become a leading consumer goods company in emerging markets.
• To create a portfolio of brands that are loved and trusted by consumers.
• To build a sustainable and responsible business.

Segment-wise Financial Analysis of Godrej Consumer Products Limited (GCPL) #

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics: #

• Consolidated revenue grew from ₹12,276.5 crore (FY 2021-22) to ₹13,315.97 crore (FY 2022-23), and ₹14,096.11 crore (FY 2023-24)
• EBITDA growth reported at 21% for FY 2023-24.
• Net profit after tax showed variability: ₹1,702.46 crore (FY 2022-23) to a loss of ₹(560.55) crore (FY 2023-24), attributed to a significant exceptional loss in the most recent fiscal year.
• The debt-equity ratio increased from 0.07 in FY 2022-23 to 0.25 in FY 2023-24, due to an increase in short-term borrowings.
• Inventory turnover ratio increased, with inventory days reduced.
• The return on net worth experienced a decline, shifting from 13.34% in FY 2022-23 to -4.25% in FY 2023-24, primarily due to the exceptional loss.

Business Segment Performance: #

• India & SAARC: Household Insecticides and Air Care categories remain underdeveloped, presenting growth potential. The modern trade channel experienced high double-digit growth. The rural outreach expanded through the “Vistaar” project.
• Indonesia: Showed robust performance with 14% topline growth in FY 2023-24, driven by a resurgence in the HIT brand. SKU rationalization reduced the product portfolio by 50% which led to reduction in inventory turnover days.
• Africa, USA, and Middle East (GAUM): Achieved a 33% reduction in SKUs between FY 2022-23 and FY 2023-24. The e-commerce segment experienced growth exceeding 15%, now comprising 8% of the total business. Transition to outsourced distribution and India-based 3PL manufacturing is improving profitability.
• Latin America: Faced currency devaluation and hyperinflation in Argentina, The Chilean operations saw a rebound, with a 20% local currency growth and positive EBITDA.

Major Strategic Initiatives and their Progress: #

• Category Development: Introduced Renofluthrin (RNF) in Household Insecticides in India, gaining exclusive access in the medium term. Launched products such as Godrej Fab and Godrej Aer-O, expanding into new categories.
• Radical Simplification: Reduced the manufacturing footprint by 40% targetted by FY 2025-26. SKU rationalization led to a 30% overall reduction. Operations in Africa were restructured, including outsourcing distribution and reassessing manufacturing.
• Digital Transformation: Implemented geotagging for general trade outlets in India, introduced sales control centers, and automated distributor order management.
• Diversity, Equity, and Inclusion (DEI): Focused on improving representation, retention, and advocacy across all operations with the establishment of the Godrej DEI Lab.

Risk Landscape Changes: #

• Climate Change: Identified as a significant risk, particularly impacting operations in India, Indonesia, and Africa. Mitigation actions include rainwater harvesting, watershed management, and detailed climate assessments.
• Cyberattacks: Cyber threats pose risks of operational disruption, financial losses, and reputational damage. The Company has implemented enhanced information security measures, achieving ISO 27001 certification and improving BitSight scores.
• Regulatory Risks: Increased regulations related to Extended Producer Responsibility (EPR) for plastic packaging and evolving chemical safety standards.

ESG Initiatives and Metrics: #

• Environmental Sustainability: Achieved 27% of energy from renewable sources, targeted 35% by FY 2025-26. Reduced plastic packaging intensity by 22% since the fiscal year 2019-20 and aims for 80% recyclable plastic by FY 2025-26. Diverted 7,278 MT of waste from landfills through CSR projects.
• Social Responsibility: Reached 28.4 million people through the Elimination of Mosquito Borne Endemic Diseases (EMBED) program, achieving a 54% reduction in malaria incidence since 2015.
• Diversity and Inclusion: Reported 48% women in the total workforce, with a goal of 30% women in senior leadership roles.

Management Outlook: #

• The Group is committed to a long-term vision (Vision 2040) and is executing a strategic transformation.
• Prioritizing category development in underdeveloped categories through product innovation and increased marketing investments.
• Focus on achieving double-digit volume growth in key markets like India and Indonesia and improving EBITDA margins in Africa and showing a positive PAT.
• Continued investment in R&D and design to drive innovation.
• Commitment to increasing diversity and inclusion to represent the global consumer base.
• Ongoing efforts to reduce environmental impact, including afforestation, biodiversity restoration projects and net-zero by 2035 ambition.
• Continuous focus on integrating climate change risks into the Enterprise Risk Management (ERM) system.

Detailed Analysis #

Financial Position Analysis of Godrej Consumer Products Limited #

Consolidated 3-Year Comparative Analysis #

Significant Year-over-Year Changes (>10%) #

FY2023-24 vs. FY2022-23 #

• Other Intangible Assets: Decreased by 24.58%, primarily due to impairment loss recognized in the Africa CGU.
• Other Investments (Non-Current): Increased by 112.95% due to higher investments in bonds.
• Trade Receivables: Increased by 23.29%, possibly due to expanded sales or changes in credit terms.
• Current Investments: Decreased by 21.62%.
• Current Borrowings: Increased by 274.20%, mainly due to higher utilization of short-term financing.
• Other Current Financial Liabilities: increased by 29.15%.
• Other Equity: Decreased by 8.73%.

FY2022-23 vs. FY2021-22 #

• Non-current Borrowing: Increased by 514%.
• Current Investments: Increased by 97.12%
• Inventories: Increased by 34.50%

Working Capital Trends #

• FY2023-24: Current assets decreased slightly, while current liabilities increased significantly primarily due to higher short-term borrowings.
• FY2022-23: Both current assets and current liabilities decreased, with a notable increase in current assets.
• FY2021-22: Current assets and current liabilities were lowest in the observed period.

Asset Quality Metrics #

• Impairment losses on goodwill and brands significantly increased in FY2023-24, indicating a decline in the value of these intangible assets.

Debt Structure and Maturity Profile #

• The Company’s debt structure shifted significantly in FY2023-24 with the introduction of commercial papers under current borrowings.
• Long-term debt was reduced due to transfer to current maturities.

Off-Balance Sheet Items #

• The guarantees provided on behalf of subsidiaries significantly decreased in the year ended on 31st March, 2024 due to divestment.

Operating Performance #

Income Statement #

Revenue Breakdown by Segment/Geography with Growth Rates #

• India & SAARC: FY24 saw a launch of a van distribution program to expand rural outreach, doubling rural distribution outlets and tripling covered villages. The modern trade channel experienced high double-digit growth, and quick commerce efforts were doubled. A new chemist and cosmetic sales channel was established. E-commerce growth exceeded 25%.
• Indonesia: FY24 revenue grew by 14%, with significant growth in Household Insecticides (HIT brand) and Hair Color. A shift to a distributor-led model in general trade increased reach and reduced operational costs.
• Africa, USA, and Middle East: Revenue declined by 7% in INR terms due to currency devaluation in Nigeria and divestment in East Africa, but grew by 16% in local currency. E-commerce in the USA grew by over 15%. The FMCG portfolio in Africa experienced high double-digit volume growth.
• Latin America: FY24 saw 3% revenue growth, impacted by currency devaluation and hyperinflation in Argentina.
• Global: 41% of the total revenue came from international operations.

Cost Structure Analysis #

• Cost of Materials Consumed: Decreased to ‘2,965.07 crores in FY24 from ‘3,366.26 crores in FY23 (standalone financials).
• Employee Benefits Expense: Increased to ‘498.56 crores in FY24 from ‘372.19 crores in FY23 (standalone financials).
• Other Expenses: Increased to ‘2,141.22 for the year ended March 31, 2024, compared to ‘1,698.70.

Margin Analysis (Gross, Operating, Net) with Trends #

• Operating Profit Margin (Standalone): Increased to 26.68% in FY24 from 24.37% in FY23.
• Operating Profit Margin (Consolidated): Increased to 21.78% in FY24 from 19.07% in FY23.
• Net Profit Margin (Standalone): Decreased to 7.83% in FY24 from 20.10% in FY23.
• Net Profit Margin (Consolidated): Decreased to -4.01% in FY24 from 12.90% in FY23.

Operating Leverage #

• Advertising and publicity spending increased significantly, with ‘1,000 crore invested in two manufacturing sites in India.

Non-Recurring Items #

• Exceptional Items (FY24): A loss of ‘2,476.86 crores (Consolidated) and ‘1,152.75 crores (Standalone), including impairment provisions, restructuring costs, and acquisition-related costs. Specific items include loss on the sale of subsidiaries, impairment loss on goodwill and brands, and stamp duty.
• Exceptional Items (FY23): Exceptional items were present but much lower (‘54.11 cr. consolidated & ‘27.59 cr. standalone), including litigation settlements.

EPS Analysis (Basic/Diluted) #

• Standalone:
  • Basic EPS: Increased to ‘6.33 in FY24 from ‘14.80 in FY23.
  • Diluted EPS: Increased to ‘6.32 in FY24 from ‘14.80 in FY23.
• Consolidated:
  • Basic EPS: Decreased to ’ (5.48) in FY24 from ‘16.65 in FY23.
  • Diluted EPS: Decreased to ’ (5.48) in FY24 from ‘16.65 in FY23.

Cash Management #

Cash Flow and Liquidity Analysis #

OCF, ICF, FCF Components (Consolidated) #

• Operating Cash Flow (OCF): Increased to ₹2,069.95 crores in FY24 from ₹2,150.65 crores in FY23. The OCF before working capital changes showed an increase.
• Investing Cash Flow (ICF): Net cash outflow of ₹3,363.02 crores in FY24, a significant increase from ₹1,758.34 crores outflow in FY23. A substantial increase driven by business acquisitions, along with purchases of non-current investments and intangible and tangible assets, partially offset by interest and dividend income.
• Financing Cash Flow (FCF): ₹1,406.34 crore increase inflow in FY24, and 9.23 crore outflow in FY23.

Working Capital Management Efficiency #

• Inventory turnover ratio has increased due to decrease in inventory by ~17%, with a corresponding increase in revenue by ~6%.
• Trade Receivables Turnover Ratio: Decreased slightly, from 22.90 in FY23 to 20.36 in FY24, indicates a small increase in the collection period.
• Trade Payables Turnover Ratio: Decreased from 5.28 in FY23 to 4.52 in FY24.
• Net Working Capital Turnover Ratio: Fell, from 3.43 to (25.47)

Dividend and Share Buyback Trends #

• Dividends: An interim dividend of ₹5 per share was declared and paid in FY24. After the close of the financial year, at the board meeting on May 6, 2024, the board has declared interim dividend at the rate of ₹ 10 per share.
• Share Buyback: No share buybacks have been undertaken in the past five years.

Debt Service Coverage #

• Debt Service Coverage Ratio: The ratio shows a decrease, from 99.31 in FY23 to 4.21 in FY24, owing to increase in finance cost.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio: Decreased from 3.03 in FY23 to 0.90 in FY24, indicating a decrease in short-term liquidity.
• Cash and Cash Equivalents: The Company has a significant level of Cash and Cash Equivalents and bank balance. Cash and cash equivalents increased from ₹17.69 Crores at the beginning of FY24 to ₹100.06 Crores at the end of FY24.
• Cash Conversion Cycle: Not directly available in the provided data.

Financial Performance Analysis: Key Metrics and Trends #

Profitability Ratios (3-Year Trends) #

• Return on Equity (ROE):
  • FY23-24 (Consolidated): -4.25%
  • FY22-23 (Consolidated): 13.34%
• Operating Profit Margin:
  • FY23-24 (Standalone): 26.68%
  • FY22-23 (Standalone): 24.37%
  • FY23-24 (Consolidated): 21.78%
  • FY22-23 (Consolidated): 19.07%
• Net Profit Margin:
  • FY23-24 (Standalone): 7.83%
  • FY22-23 (Standalone): 20.10%
  • FY23-24 (Consolidated): -4.01%
  • FY22-23 (Consolidated): 12.90%

Liquidity Metrics #

• Current Ratio:
  • FY23-24 (Standalone): 0.90
  • FY22-23 (Standalone): 3.03
  • FY23-24 (Consolidated): 0.99
  • FY22-23 (Consolidated): 1.76

Efficiency Ratios #

• Inventory Turnover Ratio:
  • FY23-24 (Standalone): 13.35
  • FY22-23 (Standalone): 10.89
  • FY23-24 (Consolidated): 9.95
  • FY22-23 (Consolidated): 7.20
• Debtors’ (Receivables) Turnover Ratio:
  • FY23-24 (Standalone): 20.36
  • FY22-23 (Standalone): 22.90
  • FY23-24 (Consolidated): 10.05
  • FY22-23 (Consolidated): 11.18

Leverage Metrics #

• Debt-Equity Ratio (including financial liabilities):
  • FY23-24 (Standalone): 0.21
  • FY22-23 (Standalone): 0
  • FY23-24 (Consolidated): 0.25
  • FY22-23 (Consolidated): 0.07
• Interest Coverage Ratio:
  • FY23-24 (Standalone): 6.77
  • FY22-23 (Standalone): 529.25
  • FY23-24 (Consolidated): 0.10
  • FY22-23 (Consolidated): 12.02

Working Capital Ratios #

• Net Working Capital Turnover Ratio:
  • FY23-24: -25.47
  • FY22-23: 3.43

Key Observations #

• Negative ROE indicates losses incurred during the financial year.
• Operating and Net Profit Margins have decreased, primarily due to significant exceptional items.
• The Current Ratio declined, signaling reduced short-term liquidity.
• The Debt-Equity ratio increased significantly, showing a substantial increase in leverage.
• The Interest Coverage Ratio has drastically fallen, indicating a reduced ability to meet interest obligations.
• The Inventory Turnover Ratio increased, representing quicker sales.
• The Debtors’ (Receivables) Turnover Ratio decreased, indicating an increasing collection period.

Godrej Consumer Products Limited (GCPL) Segment-Wise Financial Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Consolidated: Revenue for FY2023-24 reached ₹14,096.11 crore, with a 6% growth. EBITDA grew by 21%.
• Indonesia: FY2023-24 revenue showed a 14% growth.
• Africa, USA, and Middle East (GAUM): Saw a 7% decline in net sales in INR terms, the net sales have grown by 16% in constant currency. EBITDA improved by 330 bps.
• Latin America: Net sales grew by 3% in INR, while EBITDA saw an 80% decline due to forex impacts in Argentina, specifically. Chilean operations had a 20% growth in local currency (24% in INR).

Market Share and Competitive Position #

• India & SAARC: GCPL holds leadership positions in Household Insecticides, Air Care, and Hair Colour.
• Indonesia: GCPL is a leader in Household Insecticides, Air Care, and Baby Wipes.
• Sub-Saharan Africa: No.1 in Hair Colour (Ethnic hair).
• Latin America: No.1 in Hair Colour and Hair Fixing Sprays in Argentina, and No.1 in Depilatory Products in Chile.
• India: Goodknight Liquid Vaporizer penetration is ~25%. In Indonesia and Africa, it ranges from 1% to 2%.
• India: Godrej Expert Rich Crème (Mini) helped grow Hair Color category penetration by >500 bps.

Key Products/Services Performance #

• Household Insecticides: Experienced growth in India and Indonesia. The introduction of Renofluthrin (RNF) in India is expected to be a game-changer, with GCPL having exclusive access. HIT in Indonesia, experienced growth in penetration and a ~90 bps increase.
• Air Care: Godrej Aer in India showed consistent multi-year growth.
• Hair color: Godrej Expert Rich Crème (Mini) and Godrej Selfie Shampoo Hair Color contributed to increase penetration and accessibility.
• Hair Care (Africa): Darling Ombre Braids in South Africa demonstrated consistent multi-year growth. Focus on growing Wet Hair portfolio in Africa yielded a high double-digit volume growth.
• Liquid Detergent: Expansion into liquid detergents was made by launching new brand ‘Godrej Fab’.
• Fragrance and Sexual wellness Investment into these new categories was made to increase the Total Addressable Market in India.

Geographic Distribution and Market Penetration #

• International Operations: Contributed 41% of total revenue in FY2023-24.
• India: Project Vistaar aims to double rural coverage.
• Indonesia: Shifted to a distributor-led model in general trade.
• Africa: Restructuring distribution and rebalancing the portfolio through FMCG in Nigeria. In East Africa, the Hair Extensions business was exited.

Operational Efficiency Metrics #

• SKU Rationalization: Reduced SKUs by 30% overall, 550 to 100 SKUs in Raymond Consumer Care.
• Inventory Optimization: In the GAUM regions, inventory days were reduced from 93 to 67. In Indonesia, inventory turnover was reduced by a further 10 days.
• Manufacturing Footprint: Reduction by 40% by FY2025-26.
• Automation: Implementation of the Energy and Utility Management System and IoT implementation in the South and Northeast clusters.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Category development through product innovation, building relevance, creating access, and increasing marketing investments.
  • Expansion of the Total Addressable Market (TAM) in India.
  • Global expansion into over 80 countries.
  • Investments in distribution, particularly in rural India (Project Vistaar) and digital sales enablement.
  • Emphasis on sustainability-led product innovation and a “Green Discount” approach.
  • DEI (Diversity, Equity, and Inclusion) initiatives.
• Challenges:
  • Need to improve performance of large, profitable brands like HIT and Ezee in India, Stella in Indonesia, and Inecto in Africa.
  • Need for improvement in ESG scores.
  • Need to increase the representation of women in senior leadership.
  • Navigating hyperinflation and currency devaluation in some international markets.
  • Impact of extreme weather events.
  • Exposure to cyberattack risks.

Segment-Wise Financial Analysis: Godrej Consumer Products Limited (GCPL) #

This segment-wise financial analysis focuses on strategic, operational, financial, regulatory, and emerging risks for GCPL.

India & SAARC #

Strategic Risks #

• Severity: High. Category development in underdeveloped categories like Household Insecticides, Air Care, and Hair Colour is central to growth.
• Likelihood: Medium. Success depends on product innovation, building relevance, creating access, and increasing marketing investments.
• Trend: Increasing. Penetration gains in Hair Colour with the Godrej Expert Rich Crème mini pack (+500 bps) indicate a positive trend, although some large brands like HIT and Ezee need to perform more consistently.
• Mitigation Strategies: Focus on product innovation, enhanced marketing investments, expansion of rural distribution through Project Vistaar, and leveraging digital back-end for sales tracking.
• Control Effectiveness: Moderate. Positive results in category penetration, but improvement needed for some key brands.
• Potential Financial Impact: Park Avenue and Kamasutra acquisition sets up GCPL to enter large categories. Failure of strategy could impact longer-term growth and profitability.

Operational Risks #

• Severity: High. Occupational Health and Safety (OHS) risks are present due to physical hazards in manufacturing and distribution.
• Likelihood: Medium. The risk of accidents is heightened by insufficient OHS training.
• Trend: Decreasing. Zero fatalities for four consecutive years and reduction in LTIFR.
• Mitigation Strategies: Robust Health & Safety policy, strong safety management system, regular safety procedure reviews, and Central Safety Committee oversight.
• Control Effectiveness: High. Zero fatalities reported across offices and manufacturing plants.
• Potential Financial Impact: Increased OHS risks can result in legal expenses, operational interruptions, and reputational damage.

Financial Risks #

• Severity: Medium. Exposure to Forex fluctuations.
• Likelihood: Medium. Unfavorable currency fluctuations could impact cash flow and margins.
• Trend: Stable. Managed through a dedicated Forex Committee and hedging.
• Mitigation Strategies: Forex policy determined by a Forex Committee, which monitors exposures and guides hedging decisions.
• Control Effectiveness: High. Forex Committee monitors exposure and hedging.
• Potential Financial Impact: Increased cost of hedging, impact of open exposure.

Compliance/Regulatory Risks #

• Severity: Low. Evolving regulations/bans on ingredients or packaging materials.
• Likelihood: Low. Strict adherence to statutory compliance is practiced.
• Trend: Stable. Proactive monitoring and adaptation to regulatory changes.
• Mitigation Strategies: Adherence to all regulations and laws; Legatrix system for monitoring compliance.
• Control Effectiveness: High. Maintained high levels of statutory compliance.

• **Potential Financial Impact**: Litigation, penalties and cost of adaptation to new regulations.
  

Emerging Risks #

• Severity: Medium. Extreme weather events disrupting supply chains and causing production delays.
• Likelihood: Medium. GCPL consumers are located in areas prone to extreme weather. Rising temperatures altering monsoon patterns and increasing water stress.
• Trend: Increasing. Climate change impacts such as unpredictable weather, water scarcity, and temperature fluctuations.
• Mitigation Strategies: Installed rainwater harvesting systems, community support for water access, watershed management with farming communities, detailed climate assessments for high-risk areas.
• Control Effectiveness: Moderate. Initial steps taken, but continuous adaptation is needed.
• Potential Financial Impact: Disruption of supply chain, leading to loss of production and increased costs.

Indonesia #

Strategic Risks #

• Severity: High. Category development and penetration in Household Insecticides is critical.
• Likelihood: Medium. Dependent on efficacy of formula changes, scaling liquid vaporiser format, and increased marketing.
• Trend: Positive. Growth of HIT brand by 50% shows strategy effectiveness.
• Mitigation Strategies: Formula changes for efficacy, scaling liquid vaporiser format, increased media spending (1.5x), packaging refreshes, and trial packs.
• Control Effectiveness: High. Positive results evident with the HIT brand’s growth.
• Potential Financial Impact: Market share gains can result in substantial revenue growth.

Operational Risks #

• Severity: Medium. Hyperinflation and currency devaluation pose challenges.
• Likelihood: Medium. Instability of local currency increases vulnerability.
• Trend: Increasing. The Indonesian economy is prone to macroeconomic instability.
• Mitigation Strategies: Utilising local manufacturing capabilities to lower production costs, investing in local procurement to reduce reliance on imports.
• Control Effectiveness: Moderate. Actions taken, but external factors play a significant role.

• **Potential Financial Impact**: Increased reliance on local manufacturing and reduced costs.
  

Financial Risks #

• Severity: Medium. Changing consumer preferences towards natural and sustainable options.
• Likelihood: Medium. Consumers are seeking greener alternatives.
• Trend: Increasing. Consumer demand for sustainable products is growing.
• Mitigation Strategies: Life Cycle Assessment of over 50% of products, working on making products greener, exploring alternate packaging materials.
• Control Effectiveness: Moderate. Progress made, but continuous adaptation is needed.

• **Potential Financial Impact**: Reputational benefits and long-term cost savings.
  

Compliance/Regulatory Risks #

• Severity: Low. Adherence to regulations.
• Likelihood: Low. Regular monitoring of compliance.
• Trend: Stable. Compliance is maintained.
• Mitigation Strategies: The highest level of statutory compliance is maintained.
• Control Effectiveness: High. Robust compliance management system in place.

• **Potential Financial Impact**: Regulatory penalties due to non-adherence.
  

Emerging Risks #

• Severity: High. Cyberattacks leading to data theft and operational disruption.
• Likelihood: Medium. Reliance on digital infrastructure increases vulnerability.
• Trend: Increasing. Growing reliance on digital infrastructure and online platforms.
• Mitigation Strategies: Implementation of ISO 27001:2022, data leak prevention measures, achieving NIST maturity level of 3.5, enhancing cybersecurity culture.
• Control Effectiveness: Improving. Ongoing efforts to elevate BitSight security rating.

• **Potential Financial Impact**: Disruption of operations and reputational damage.
  

Sub-Saharan Africa & USA #

Strategic Risks #

• Severity: High. Restructuring and rebalancing of the portfolio.
• Likelihood: Medium. Dependent on effective distribution models and portfolio adjustments.
• Trend: Improving. Focus on FMCG portfolio and margin improvement.
• Mitigation Strategies: Restructuring business model in East Africa, shifting to an outsourced distribution model in West Africa, and simplifying operations.
• Control Effectiveness: Moderate. Actions taken but external factors and market dynamics play a role.
• Potential Financial Impact: Improved profitability and cash flow, lower costs.

Operational Risks #

• Severity: Medium. Risk of IT system failure and cybersecurity attacks.
• Likelihood: Medium. Dependence on IT systems for operations.
• Trend: Stable. Mitigation measures are in place.
• Mitigation Strategies: Implementation of SAP in key regions, salesforce automation.
• Control Effectiveness: Moderate. Ongoing efforts to improve systems and processes.

• **Potential Financial Impact:** Significant damage to reputation and financial health.
  

Financial Risks #

• Severity: Medium. Commodity price volatility.
• Likelihood: Medium. Supply chain faces challenges due to fluctuations in input costs.
• Trend: Stable. Addressed through hedging and supplier diversification.
• Mitigation Strategies: Hedging, expanding commodity suppliers, focusing on securing high-quality palm oil from various regions.
• Control Effectiveness: Moderate. Strategies in place but external market conditions influence effectiveness.
• Potential Financial Impact: Increase in cost of production.

Compliance/Regulatory Risks #

• Severity: Low. Evolving regulations on carbon pricing and ESG disclosures.
• Likelihood: Low. Regular monitoring and compliance with local laws.
• Trend: Stable. Proactive compliance measures in place.
• Mitigation Strategies: Adhering to all regulations and laws
• Control Effectiveness: High. Maintained high levels of statutory compliance.
• Potential Financial Impact: Financial burden of fines/penalties.

Emerging Risks #

• Severity: High. Climate change increasing the frequency of natural disasters.
• Likelihood: Medium. Projections include more frequent dry spells, longer heatwaves, and rising sea levels.
• Trend: Increasing. Climate change impacts are intensifying.
• Mitigation Strategies: Focus on reducing GHG emissions and water usage, and improving supplier practices.
• Control Effectiveness: Developing. Assessments and mitigation plans are in progress.
• Potential Financial Impact: Higher operating costs, disruption of the supply chain.

Latin America #

Strategic Risks #

• Severity: High. Need to improve profitability and adapt to macroeconomic challenges.
• Likelihood: Medium. Dependent on successful market penetration and pricing strategies.
• Trend: Improving. Efforts to optimize revenue streams and enhance market competitiveness.
• Mitigation Strategies: Improving margins by outsourcing manufacturing, optimizing working capital management.
• Control Effectiveness: Moderate. Strategies in place but subject to external market conditions.
• Potential Financial Impact: Improved profitability and reduced reliance on imports.

Operational Risks #

• Severity: Medium. Exposure to extreme weather events like El Niño.
• Likelihood: Medium. Regional climate events can disrupt operations.
• Trend: Increasing. Climate events are intensifying.
• Mitigation Strategies: Developing and implementing climate adaptation strategies.
• Control Effectiveness: Developing. Assessments and mitigation plans are in progress.
• Potential Financial Impact: Disruptions from extreme weather events.

Financial Risks #

• Severity: High. Hyperinflation and currency devaluation.
• Likelihood: High. Economic instability in the region.
• Trend: Stable. Managed through manufacturing capabilities and local procurement.
• Mitigation Strategies: Utilizing local manufacturing and resources to lower production costs, investing in local procurement to reduce import reliance.
• Control Effectiveness: Moderate. Measures in place, but external economic factors have a significant impact.
• Potential Financial Impact: Increased cost of raw materials, devaluation of local currency and increased inflation.

Compliance/Regulatory Risks #

• Severity: Low. Adherence to local and international regulations.
• Likelihood: Low. Regular monitoring of compliance.
• Trend: Stable. Compliance is maintained.
• Mitigation Strategies: Compliance with all regulations and laws.
• Control Effectiveness: High. Robust compliance management system in place.
• Potential Financial Impact: Regulatory penalties.

Emerging Risks #

• Severity: High. Increasing incidence of dengue due to climate change.
• Likelihood: High. Dengue cases have risen significantly in the region.
• Trend: Increasing. Climate change impacts are intensifying.
• Mitigation Strategies: Introduction of Renofluthrin (RNF) in Household Insecticides, exclusive access to RNF.
• Control Effectiveness: Developing. New initiatives show promise, but impact yet to be fully realized.
• Potential Financial Impact: Increased demand for effective Household Insecticides.

ESG Framework #

Environmental Metrics and Targets #

• Reduced specific energy consumption by 35% as of FY24, with a target of 40% reduction by 2025 (v. 2011 baseline).
• Renewable energy sources constitute 27% of the energy portfolio as of FY24, with a target of 35% by 2025.
• GHG emission intensity decreased by 41% as of FY24, with a target to reduce emission intensity by 45% by 2025 and carbon neutrality for scope 1 & 2 emissions.
• Water intensity was reduced by 39% as of FY24, with a target of 40% reduction by 2025, and achieved 15x water positivity.
• Diverted 100% of waste from landfill.
• Plastic packaging intensity was reduced by 22%.
• Aims to have 80% of plastics be recyclable.
• Targets replacing 30% of category I (rigid plastic), 10% category II (flexible plastic), and 5% category III (multi-layer plastics) with post-consumer recycled plastic.

Social Responsibility Programs #

• EMBED program has reached 28.4 million people at high risk for malaria, making 5,225 villages malaria-free.
• EMBED urban dengue program in 11 Indian districts resulted in a 65% reduction in dengue cases.
• Community waste management initiatives diverted 7,278 MT of waste from landfills.
• Conducted human rights due diligence, assessing 41% of the blue-collar workforce in India and Indonesia.
• Supplier sustainability assessment covered 76% of suppliers by revenue.
• Aims to have 30% women in senior leadership, with women representing 47% of total workforce.
• Through CSR initiatives, a sanitation park was established processing 4 TPD of waste and providing medical camps for over 1,100 waste workers
• Community solid waste management programs have diverted 7,200 MT of waste from landfills since 2019.

Governance Structure and Effectiveness #

• Has a board-level ESG committee that oversees sustainability issues, meeting twice a year.
• 15% of senior management’s goals are dedicated to people and planet goals.
• Maintains a global category structure, with a focus on product development and brand equity, managed through a stage-gate process.
• Has an Audit Committee, Nomination and Remuneration Committee, CSR Committee, Stakeholder Relationship Committee, Risk Management Committee, and an ESG Committee.

Sustainability Investments and ROI #

• Invested approximately ’ 652.47 lakhs in manufacturing sites to enhance energy efficiency and reduce water consumption.
• Making products greener by 1/3 by way of using efficient technologies, reducing water intensity, waste management, carbon emissions and using renewable energy sources.
• Investments in automation at the Kathua plant led to a 35% reduction in specific energy consumption.
• The installation of robotic pelletizers, advanced die sets, and productivity dashboards has improved productivity by 10%.
• Investments in renewable energy include solar panels and biomass briquettes used in boilers.
• Installed an Energy and Utility Management System (EMS/UMS) at its Malanpur plant, resulting in a 7% reduction in specific energy consumption.

ESG Ratings and Peer Comparison #

• Three of the Group companies are in the global leadership league for climate action/ESG in their respective industries.

Regulatory Compliance and Future Preparations #

• Adheres to all regulations and laws in its operating regions, using an internal system named Legatrix to monitor compliance across all manufacturing units.
• Ensures compliance with the evolving chemical usage regulations and the extended producer responsibility (EPR) regulations, maintaining plastic neutrality in India.
• Human rights due diligence process is aligned with the United Nations Guiding Principles on Business and Human Rights.
• Supports all decarbonisation policies aligned with its areas of operation and welcomes policies that incentivize reducing carbon emissions.

Godrej Consumer Products Limited (GCPL) Segment-Wise Financial Analysis #

India & SAARC #

Management Guidance and Assumptions: #

• Aim for steady, double-digit volume growth.
• Consistent efforts in category development are showing increased penetration and consumption.
• Consistent volume growth targets of 9-10% in upcoming years.
• Prioritizes Underlying Volume Growth (UVG) over sales growth.

Market Growth Forecasts: #

• Household Insecticides, Air Care, and Hair Colour categories remain underdeveloped, presenting significant growth potential.
• Dengue cases have been steadily increasing over the past 15 years due to climate change.

Planned Strategic Initiatives: #

• Introduction of Renofluthrin (RNF) in Household Insecticides, providing a competitive edge.
• Launch of Goodknight Agarbatti with RNF to formalize the illegal incense sticks market.
• Expand the Total Addressable Market (TAM) in India, including entry into Fragrance and Sexual Wellness.
  • Ramp up availability via Project Vistaar, largest rural van operation of it’s kind. Aimed at doubling rural coverage.
• Modern Trade channel strategy to deliver high double digit growth.
• Create new chemist and cosmetic sales channels for accelerated growth.
• Doubling down on quick commerce, which is gaining significant popularity.

Capital Expenditure Plans: #

• INR 1,000 crore investment in two manufacturing sites in India.
• INR 515 crore investment over the next five years in a state-of-the-art manufacturing facility in Tamil Nadu.

Efficiency Improvement Targets: #

• Reduce manufacturing footprint by 40% by fiscal year 2025-26.
• Optimize operational efficiencies and optimize revenue streams for sustained growth and market competitiveness.

Potential Challenges and Opportunities: #

• Challenges: Lower consumption levels in India. Need to get large, profitable brands like HIT and Ezee in India consistently performing at their potential.
• Opportunities: Increasing dengue cases in Latin America offer opportunities to serve consumer needs. Growth potential in underdeveloped categories like Household Insecticides, Air Care, and Hair Colour.

Indonesia #

Management Guidance and Assumptions: #

• Aim for double-digit volume growth.
• Guidance to prioritize UVG.
• Cash flow is the most important metric.

Market Growth Forecasts: #

• Underpenetrated market in Liquid Vaporisers (LV) presents an opportunity to shift consumers from burning formats.

Planned Strategic Initiatives: #

• Shift to distributor-led model in general trade to increase reach and reduce operational costs.
• Leverage digital technologies to build closer connections with supply chain partners.
• Continue distribution expansion and focus on new outlets while maximizing output from existing distribution.
• Focus on general trade for distribution.

Capital Expenditure Plans: #

• Investment in manufacturing sites to serve globally.
• Investments to improve operations and efficiency.
• Continued investments in R&D.

Efficiency Improvement Targets: #

• SKU rationalization reduced product portfolio by 50%.
• Inventory turnover reduced by 10 days.
• Achieved tighter control over the entire supply chain.
• Reduce operational complexity and release Sales team’s bandwidth.
• Increase range to general trade outlets and active outlets.

Potential Challenges and Opportunities: #

• Challenges: Need to get the Stella brand consistently performing at its potential.
• Opportunities: Growth of HIT brand driven by a multi-pronged approach to category development.

Africa, USA, and Middle East (GAUM) #

Management Guidance and Assumptions: #

• Significant moves to improve longer-term profitability.
• Focus is to simplify, increase EBITDA margins and to show a positive PAT.
• Cash flow is the most important metric.
• Aim to double-digit Return on Capital Employed (ROCE) in the next year or two.
• Aim to get to mid-teens EBITDA margins.

Market Growth Forecasts: #

• Strong e-commerce growth, accounting for ~8% of the total business in the USA.
• High double-digit volume growth for Wet Hair in Africa.

Planned Strategic Initiatives: #

• Restructuring the business model in East Africa (Hair Extensions exited).
• Restructuring the distribution model and rebalancing the portfolio through FMCG in Nigeria.
• Outsourcing manufacturing in the Americas to improve margins.
• Shifting to outsourced distribution in West Africa.
• Scaling up last-mile distribution in West Africa.

Capital Expenditure Plans: #

• Reassessing manufacturing footprint, exploring options to manufacture in India and export.

Efficiency Improvement Targets: #

• Reduce manufacturing footprint and SKU count significantly.
• Transition into India-based 3PL manufacturing for the USA to improve profitability.
• Increase distribution coverage.

Potential Challenges and Opportunities: #

• Challenges: High inflation in Africa.
• Opportunities: Building partnerships with large scale salons across Africa. Leveraging availability, in-store presence, and competitive pricing to build opportunities in South Africa.

Latin America #

Management Guidance and Assumptions: #

• Improve margins by outsourcing manufacturing.

Market Growth Forecasts: #

• Chilean operations experienced a notable rebound, with net sales growing by 20% in local currency.

Planned Strategic Initiatives: #

• Improving margins by outsourcing manufacturing.
• Restore growth momentum in Argentina and Chile by emphasizing profitable expansion strategies.
• Optimize working capital management.

Potential Challenges and Opportunities: #

• Challenges: Currency devaluation and heightened inflation following governmental changes in Argentina.
• Opportunities: Rebound in Chilean operations.

Overall Key Strategic Initiatives Applicable Across Regions #

• Category Development: Focus on a four-pillar model: Relevance, Access, Availability, and Trials, applied across key categories.
• Radical Simplification: Focused on four elements: SKUs, People, Operations, and Processes, to fund investments in category development.
• Innovation: Significant investments in R&D and Design teams, developing products with a “Green Discount” to consumers, balancing sustainability with affordability and accessibility.
• Digital Transformation: Investments in a digital backbone for sales and distribution, improving sales team effectiveness.
• Sustainability: Embedding sustainability across various aspects of the business, with goals aligned with the Paris Agreement and UN Sustainable Development Goals.
• Inclusivity: Building a more diverse and inclusive workforce with specific targets for women in senior leadership and representation from LGBTQIA+ and Persons with Disabilities (PWD) communities.

Audit and Compliance Analysis of Godrej Consumer Products Limited (GCPL) for FY 2023-24 #

Auditor’s Opinion and Qualifications #

• B S R & Co. LLP issued an unmodified opinion on the standalone and consolidated financial statements.
• Auditors noted a limitation in testing audit trails for systems during consolidation due to a third-party software provider.

Key Accounting Policies and Changes #

• Financial statements are prepared on an accrual and going concern basis.
• Fair value method used to compute share-based payment expenses.
• Select BRSR and GRI indicators were restated for FY 2022-23 due to change in methodology.

Internal Control Effectiveness #

• Adequate internal financial controls were maintained and operating effectively as of March 31, 2024.

Regulatory Compliance Status #

• Compliant with applicable Secretarial Standards and SEBI listing regulations.
• Compliant with laws including the Insecticide Act, 1968, Legal Metrology Act, and Drugs & Cosmetics Act, 1940.
• Declared plastic neutral in India.

Legal Proceedings and Their Potential Impact #

• Pending litigations related to excise duty, sales tax, service tax, and income tax exist.
• Impact of proceedings disclosed in Notes 33 and 46 of the Standalone financial statements.
• Facing claims due to alleged unauthorized, illegal, and fraudulent acts by an employee.

Related Party Transactions #

• Transactions conducted in the ordinary course of business and on an arm’s length basis.
• Disclosures made as per Ind AS 24.

Subsequent Events #

• Interim dividend of ₹10 per share declared on May 6, 2024.
• Godrej family members entered into agreements on April 30, 2024, involving a realignment of shareholding, subject to regulatory approvals. GCPL is not a party to the agreements.

Analysis of Accounting Quality and Regulatory Risk Assessment #

Accounting Quality #

• GCPL follows Ind AS with no significant concerns raised by auditors.
• Consistent accounting policies and fair value measurement support financial statement preparation.
• Implementation of ESGS and accounting for share-based payments are compliant with regulations.

Regulatory Risk #

• Risks related to non-compliance with material information reporting.
• Exposure to regulatory risks from evolving environmental regulations (plastics, packaging, carbon pricing, ESG disclosures).