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Godrej Consumer: Growth led year - Views on News from Equitymaster
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Godrej Consumer: Growth led year
Apr 26, 2008

Performance summary
  • The consolidated net sales for FY08 was up 16% YoY. On the standalone basis, it was up 17% YoY.
  • While the soap segment grew by 20% YoY, hair colour witnessed a 21% YoY rise in FY08.

  • Operating margins on consolidated basis improved by 60 basis points for FY08

  • Bottomline grew by 11% YoY for the full year

  • GCPL also completed the acquisition of Kinky Group (Proprietary) Ltd. on April 1, 2008

  • Total dividend for the year is at 400% (Rs.4 per share). Dividend yield of 3.2%.

Consolidated picture
(Rs m) 4QFY07 4QFY08 (%) Change FY07 FY08 (%) Change
Net sales 2,418 2,718 12.4% 9,515 11,026 15.9%
Expenditure 1,987 2,151 8.3% 7,718 8,881 15.1%
Operating profit (EBDITA) 431 567 31.6% 1,797 2,145 19.4%
EBDITA margin (%) 17.8% 20.9%   18.9% 19.5%  
Other income 6 (1) -107.9% 27 40 52.1%
Interest 20 34 68.0% 96 129 33.6%
Depreciation 45 43 -3.6% 142 182 27.9%
Profit before tax 372 489 31.5% 1,585 1,875 18.3%
Extraordinary item 51     50    
Tax 29 81 178.1% 195 283 44.6%
Profit after tax/(loss) 394 408 3.7% 1,440 1,592 10.6%
Net profit margin (%) 16.3% 15.0%   15.1% 14.4%  
No. of shares (m) 225.8 225.8   225.8 225.8  
Diluted earnings per share (Rs)*         7.1  
Price to earnings ratio (x)*         17.7  
* 12 month trailing

What has driven performance in FY08?
  • The consolidated topline for FY08 was up 16% YoY. On the standalone basis, it was up 17% YoY. Domestic business continues to drive growth. While the soap segment grew by 20% YoY, hair colour witnessed a 21% YoY rise in FY08. GCPL continues to be the second largest toilet soaps player with a market share of 9.1% in fourth quarter. The company has introduced new variants and products under the Cinthol and Godrej No 1 brand. Inspite of taking price hikes during the year, the company continued to beat the industry. In hair colour segment, its market share stood at 35.1% for 4QFY08. Toiletries and liquid detergents reported a subdued performance. The performance is lower than our estimates.

  • Sales of Keyline were flat for the whole year, while that of Rapidol witnessed an increase of 71% YoY. Rapidol’s ‘Inecto’ brand continues to perform well. GCPL acquired GGME on October 1, 2007, which is a 100% subsidiary of Godrej International Ltd and distributes its soaps, hair colours and toiletries in the GCC countries. Currently its contribution is negligible, but is expected to go up going forward. The Godrej SCA Hygiene JV formed earlier launched the ‘Libero’ baby diapers in 50 cities across India. Also ‘Snuggy’ brand was relaunched. GCPL also completed the acquisition of Kinky Group (Proprietary) Ltd. on April 1, 2008 Kinky sells a variety of products which include hair, hair braids, along with hair accessories like styling gels, hair sprays and oil free shampoo. Kinky products are manufactured at plants located in South Africa at Johannesburg and Durban and the final products are sold through cash-n-carry outlets and owned stores. The purchase price paid for the acquisition is approximately South African Rand 265 m. This acquisition was a part of company’s strategy to spread its wings globally. The international operations will be one of the key growth drivers going forward.

    Consolidated sales breakup
    Rs m 4QFY07 4QFY08 (%) Change FY07 FY08 (%) Change
    Soaps 1,179 1,260 6.9% 4,751 5,690 19.8%
    Hair Colour 535 697 30.4% 2,074 2,518 21.4%
    Toiletries 612 624 1.9% 2,149 2,230 3.8%
    Liquid Detergents 53 67 26.0% 388 385 -1.0%
    Total Godrej Brands 2,379 2,648 11.3% 9,362 10,823 15.6%
    By-products 39 70 80.6% 153 203 32.9%
    Total 2,418 2,718 12.4% 9,515 11,026 15.9%

  • Operating margins on a consolidated basis improved by 60 basis points for FY08. While labour (higher number of employees, increments and higher bonus) and ad spends witnessed a rise, marginally lower raw material prices aided the expansion. Due to an increase in the price of vegetable oil, the company increased the prices of its soaps by 5% to 8% during the first and the third quarter. On standalone basis, the margins improved to 20.8% from 19.4% YoY in FY07. The margins are marginally higher than our estimates.

  • GCPL’s net profit on a consolidated basis grew by 19% YoY excluding the extraordinary and tax adjustments in FY07. Stable margins and higher other income has led to the growth. Depreciation was up by 28% YoY mainly on account of the new Katha and Sikkim factories becoming operational. Interest cost increased due to rise in loans availed towards new initiatives. The standalone profits were up 26% YoY excluding the extraordinary and tax effects. The share of the standalone net profits increased from 92% in FY07 to 93% in FY08. Rapidol and Keyline contributed 5.8% and 3.3% respectively to the consolidated bottomline. Keyline profits were down 33% YoY mainly due to the higher investment in advertising & publicity. The net margins are in line with our assumptions.

What to expect?
At the current price of Rs 125, the stock is trading at a price to earnings multiple of 12.5 times our estimated FY10 earnings. Its international operations continue to improve slowly. Also, its acquisition of Godrej Global Mideast FZE during October 2007 will help them to consolidate presence in the UAE and GCC countries. Further, Kinky provides an opportunity to enter into a new line of business and enables the company to expand its hair product portfolio. The company has continued to perform well in the domestic front. While soaps segment performance remains robust, it is trying its best to improve its performance in other segments by introducing new variants. Along with its high growth segments, its acquisitions would further fuel the growth.

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