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Godrej Soaps: Glowing numbers - Views on News from Equitymaster
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  • Jan 22, 2001

    Godrej Soaps: Glowing numbers

    Godrej Soaps Limited declared a 43% jump in its 3QFY01 net profits, on the back of a 27% surge in its operational income. The surge in bottomline also came as a result of a 23% decline in its net interest costs.

    (Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
    Sales Turnover 1,934 2,446 26.5% 5,545 6,492 17.1%
    Other Income 1 4 150.0% 10 15 61.1%
    Total expenditure 1,605 2,081 29.7% 4,716 5,491 16.4%
    Advertising expenditure 136 249 82.6% 343 617 79.7%
    Operating Profit (EBDIT) 329 365 10.9% 829 1,001 20.8%
    Operating Profit Margin (%) 17.0% 14.9%   14.9% 15.4%  
    Interest (Net) 126 97 -22.6% 397 281 -29.1%
    Depreciation 62 70 12.6% 170 181 7.0%
    Profit before Tax &
    extraordinary income
    143 201 41.0% 272 554 103.6%
    Extraordinary income (net) - -   369 -  
    Tax 13 16 26.2% 64 41 -36.5%
    Profit after Tax/(Loss) 130 185 42.5% 577 514 -11.0%
    Net profit margin (%) 6.7% 7.6%   10.4% 7.9%  
    No. of Shares (eoy) (m) 59.8 59.8   59.8 59.8  
    Earnings per share*       12.9 11.5  
    Current P/e ratio         5.6  

    Its operating margins however, declined by 210 basis points as a result of a 30% increase in operating costs. The rise in operating costs was a result of a significant 83% jump in advertising costs to Rs 249 m in 3QFY01.

    On a nine-month basis, the company’s bottomline declined by 11% compared to nine months ended December 1999 (April-December 1999). But it should be noted that an extraordinary income of Rs 510 m is included in the period April-December 1999. This amount was the profit from divestment of shares in Godrej Sara Lee. If we were to exclude this extraordinary income, Godrej Soaps bottomline has actually surged by a significant 147% in the nine-month period ended December 2000.

    Sales break-up
    (Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
    Consumer products-Godrej brands 896 1,232 37.6% 2,376 3,026 27.3%
    Consumer products-Non Godrej brands 134 71 -46.7% 467 408 -12.7%
    Chemicals 769 1,019 32.4% 2,186 2,630 20.3%
    Commodities (vegetable oils) - -   148 -  
    Other mfg./service income 85 104 21.7% 211 298 41.5%
    Financial income 50 21 -58.6% 158 130 -17.3%
    Total operational income 1,934 2,446   5,545 6,492  

    The contribution of the consumer products to the total turnover in 3QFY01 stood at 53.3% and the chemicals division contributed 41.6%. Godrej Soaps Limited recently decided to demerge into two separate entities. The company’s consumer products (soaps and toiletries) business will be part of a new company called Godrej Consumer Products Limited (GDCP). The chemicals, medical, diagnostic, estate and strategic investment businesses will form part of Godrej Industries (the new name for Godrej Soaps).

    The demerger will take place in the ratio of 60:40, in favour of Godrej Industries. Godrej Soaps’ paid-up capital stands at Rs 600 m. After the demerger, Godrej Industries (GDI) will have a paid up capital of Rs 360 m and the consumer products company will have Rs 240 m as paid up capital.

    The demerger will be favourable for both companies, giving them the necessary edge to focus on their core businesses. It will be especially beneficial for Godrej Consumer Products Limited. The company has several well-known brands in its portfolio, but its valuations have always been under a cloud. The demerger has been planned in order to improve the FMCG company’s valuations.

    The company has been introducing a string of new products and brands. It recently entered the fairness cream segment with its brand ‘Fairglow’. It should be noted that the fairness segment is very lucrative and accounts for 50% of the total Rs 6.5 bn skin-care market. The segment is growing at a significant 22%. The company already controls a 40% share of the hair colour market.

    The management’s decision to restructure the business has brought life into the stock price of the company. The stock has gained more than 65% in the last quarter. At the current price of Rs 64, Godrej Soaps trades at a P/e multiple of 5.6 times its annualised nine month FY01 earnings. The stock could see a further upsurge as growth numbers of its new consumer products launches filter in. However, the stock movement is likely to be subdued, until the company is fully demerged.



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