Godrej Consumer: No.1 does it - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

MidCapSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Godrej Consumer: No.1 does it

Feb 7, 2005

Performance Summary
Mid-cap FMCG companies are in the limelight in recent times, backed by above industry growth rates and tax benefits. In this light, let us take a look at Godrej Consumer. The company reported a decent 20% growth in the third quarter of FY05 propelled by significant pick up on the contract manufacturing side, as well as strength in its core business of soaps and hair colour. This and nearly 120 basis point improvement in operating margins led the company to report a buoyant 45% growth in bottomline.

(Rs m) 3QFY04 3QFY05 Change 9mFY04 9mFY05 Change
Net sales 1,283 1,535 19.7% 3,676 4,243 15.4%
Processing charges 0 0 - 20 0 -
Total revenues 1,283 1,535 19.7% 3,696 4,243 14.8%
Expenditure 1,027 1,211 17.9% 3,069 3,479 13.4%
Operating profit (EBDITA) 255 324 26.7% 627 764 21.8%
EBDITA margin (%) 19.9% 21.1%   17.0% 18.0%  
Other income 2 3 57.1% 8 14 69.5%
Interest (net) 7 9 30.9% 18 24 29.9%
Depreciation 24 28 18.6% 70 80 14.3%
Profit before tax 227 290 27.8% 547 674 23.2%
Tax 48 30 -37.4% 91 66 -27.4%
Profit after tax 179 260 45.0% 456 608 33.3%
Net profit margin (%) 14.0% 17.0%   12.4% 14.3%  
No. of Shares (m) 57.0 56.6   57.0 56.6  
Diluted earnings per share* (x) 12.7 18.4   16.1 21.5  
Price to earnings ratio (x)         12.8  
(* annualised)            

What is the company's business?
Godrej Consumer Products Ltd. is one of the most well known mid-cap companies in the Indian FMCG space with presence in the personal care, hair care and fabric care categories with top-of-the-mind brands such as Cinthol, Fairglow, and Godrej No.1 (soaps), Fairglow fairness cream, Godrej Shaving Cream & Round, Godrej hair dyes, Colour Soft hair colour and Ezee liquid detergent. The company bought over the ‘Snuggies’ brand in the child nappy segment in 2003. Soaps and hair colours formed about 82% of the company's revenues in 9mFY05.

What has driven performance in 3QFY05?
Sales: Growth was driven by strong showing from its soaps business (66% of revenues). The segment grew by a decent 23% YoY during 3QFY05. Though hair colour (23% of revenues) too grew by nearly 10% during the period, the growth pattern has been inconsistent. While in the June quarter the company clocked a significant 19% growth in hair colour, the growth was subdued at negative 0.8% in the September quarter. The company has introduced new variants in its hair colour business (during the second quarter of FY05), in a bid to sustain its growth momentum.

Sales mix
(Rs m) 3QFY04 3QFY05 Change 9mFY04 9mFY05 Change
Godrej Brands            
Soaps 624 767 22.9% 2,099 2,506 19.4%
Hair Colour 301 332 10.3% 869 955 9.9%
Toiletries 57 48 -14.7% 195 172 -12.0%
Liquid Detergents 272 278 2.2% 312 318 1.9%
Total Godrej Brands 1,254 1,425 13.7% 3,475 3,950 13.7%
Contract Manufacturing 1 76 5342.9% 87 192 121.4%
By Products 28 34 20.9% 115 101 -11.9%
Total 1,283 1,535 19.7% 3,676 4,243 15.4%

Apart from the company's core business, contract manufacturing proved to be a key propeller of revenue growth, both during 3QFY05 and 9mFY05. Owing to this, its contribution almost doubled to 4.5% of total revenues during 9mFY05. It has to be noted that the contract manufacturing business is inconsistent, and past is not a guarantor of the future growth in this area.

Operating margins: While most of the significant cost heads like cost of goods and staff costs as a percentage of sales went up during the quarter, Godrej Consumer managed to improve its margins led by a decline in advertising (from 13.5% of sales in 3QFY04 to 11.4% in 3QFY05) and other expenditure as a percentage of sales (from 18.7% of sales last year to 14.9% in 3QFY05). If we look at it the other way, the PBIT margins of both the soaps and personal care business improved over last year. While margins for soaps increased from 8.5% in 9mFY04 to 9.5% in 9mFY05, personal care margins (including hair colour) expanded to 38.7% from 35.3% earlier.

Cost break-up
as a % of net sales 3QFY04 3QFY05 9mFY04 9mFY05
Total Cost of goods 42.7% 47.3% 48.2% 50.5%
Staff Cost 5.1% 5.3% 5.0% 5.5%
Advertisement & Promotion 13.5% 11.4% 10.7% 10.6%
Other Expenditure 18.7% 14.9% 19.1% 15.4%
Total Expenditure 80.1% 78.9% 83.0% 82.0%

Over the last five quarters.

In the past year, Godrej Consumer, has managed to sustain its topline trend led by strength in its core business, as well as support from its contract manufacturing initiative. Tax sops have also resulted in lower tax burden.

Over the last five quarters
  3QFY04 4QFY04 1QFY05 2QFY05 3QFY05
Sales growth (YoY) 1.2% -0.8% 13.0% 14.8% 19.7%
Advertising as % of sales 9.7% 13.5% 9.0% 10.2% 11.4%
OPM (%) 14.7% 19.9% 20.2% 16.4% 21.1%
Net profit growth (YoY) -0.9% 21.4% 60.3% 25.3% 45.0%

What to expect?
Buoyed by its 9mFY05 performance, Godrej Consumer has declared a third interim dividend amounting to Rs 3 per share. At Rs 275, the stock trades at a P/E of 12.8 times annualised 9mFY05 earnings and market cap. to sales of 2.8x. The company's new plant at Baddi in Himachal Pradesh will give it a 10 year excise and income tax benefit. This will therefore, continue to help it cut costs and keep up healthy margins in the medium term. The management is shareholder friendly on account of its continuous dividend payouts and buyback programme, but in our view, the valuations already factor in some of these positives.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

GODREJ CONSUMER SHARE PRICE


Sep 29, 2020 12:07 PM

TRACK GODREJ CONSUMER

  • Track your investment in GODREJ CONSUMER with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON GODREJ CONSUMER

GODREJ CONSUMER - P&G COMPARISON

COMPARE GODREJ CONSUMER WITH

MARKET STATS