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Godrej Cons: All around growth - Views on News from Equitymaster
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Godrej Cons: All around growth
Jan 25, 2010

Performance summary
  • 3QFY10 sales grew by 54% YoY. This came on the back of strong domestic and international demand.
  • Operating (EBITDA) margin improved by 6.6% YoY during the quarter. This came on the back of lower raw material costs.
  • Net profits grew by 112% YoY during the quarter, aided by improved sales and higher operating margins.
  • Net profit for 9mFY10 grew by 118% YoY aided by higher operating profit and lower interest outgo.

Consolidated financials
(Rs m) 3QFY09 3QFY10 % Change 9mFY09 9mFY10 % Change
Net sales 3,381 5,184 53.3% 10,527 15,345 45.8%
Expenditure 2,938 4,162 41.6% 9,127 12,322 35.0%
Operating profit (EBDITA) 442 1,022 131.2% 1,401 3,023 115.8%
EBDITA margin (%) 13.1% 19.7%   13.3% 19.7%  
Other income 159 103 -35.3% 308 326 5.8%
Interest 61 20 -67.0% 153 84 -45.0%
Depreciation 51 56 10.5% 152 175 15.5%
Profit before tax 489 1,049 114.5% 1,404 3,090 120.0%
Tax 88 198 123.8% 265 611 130.4%
Profit after tax/(loss) 401 851 112.5% 1,139 2,478 117.6%
Net profit margin (%) 11.9% 16.4%   10.8% 16.2%  
No. of shares (m) 258 308   258 308  
Diluted earnings per share (Rs)*         10.0  
Price to earnings ratio (x)*         25.3  
* On a trailing 12 months basis

What has driven growth in 3QFY10?
  • Growth in sales was aided by strong performance in the domestic soaps segment, which grew by 13% YoY during the quarter. This business segment grew ahead of the market (5.5% YoY), thereby increasing its market share to 10.3% in the face of stiff competition. Hair colorant portfolio also turned in a strong performance growing at 17% outpacing the market (11%). Overall the domestic business grew by 16% YoY, while the international business contributed to the company’s overall topline performance with a strong growth of 22% YoY.

  • Godrej’s operating income grew by 131% during the quarter, aided by lower input costs. Total input costs fell by 11.7% as a percentage of sales, thanks mainly due to decline in palm oil prices. Operating income could have been higher but for the higher employee expense which increased by 232% YoY due to payment of higher compensation as a reward for achieving higher growth as well as increase in advertisement costs. The advertisement expense grew by 69% YoY which helped support higher sales growth.

  • Net profit of the company grew by 112% YoY during 3QFY10. This came on the back of higher sales and operating income.

What we expect?
At the current price of Rs 252, the stock is trading at a multiple of 19 times our estimated FY12 earnings. While the company witnessed good sales growth, the growth could have been higher. We are witnessing a slowdown in the consumer goods market due to a larger portion of the customer’s wallet being diverted to food as a result of higher food prices. However, the situation is likely to improve as the Rabi crop is expected to be good this year. Godrej continues to look for venues of inorganic growth and has taken an approval of its board to raise capital up to Rs. 30 bn for acquisitions. Going forward we expect domestic sales of the company to come from volume growth rather than from value growth as there is little price inflation. Its international brands are expected to continue to do well as they increase their foot print across geographies.

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