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Godrej Cons: Overseas business aids growth
Apr 26, 2010

Godrej Consumer Products Ltd. has announced its FY10 results. The company has reported a 46% YoY and 96% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline for the company grew by 46.6% during 4QFY10. This comes on the back of strong growth of its overseas business as well as from the inclusion of the financials of Godrej Sara Lee Ltd.
  • Operating (EBITDA) margin improved by 0.7% YoY during the quarter. This comes on the back of lower raw material costs and lower staff costs partially offset by higher advertising expenditure and higher other expenditure.
  • Net profits grew by 54.6% YoY during the quarter, aided by higher operating profit, higher other income and partially offset by higher effective tax rate.
  • Net profit for FY10 grew by 96% YoY while net profit margins grew by 3.8% aided by higher operating profit, higher other income and lower interest outgo. Net profit for the company could have been higher but for higher effective tax rate.


Consolidated financials
(Rs m) 4QFY09 4QFY10 % Change FY09 FY10 % Change
Net sales 3,473 5,092 46.6% 14,001 20,437 46.0%
Expenditure 2,766 4,017 45.2% 11,893 16,339 37.4%
Operating profit (EBDITA) 707 1,075 52.0% 2,108 4,098 94.4%
EBDITA margin (%) 20.4% 21.1%   15.1% 20.1%  
Other income 69 122 77.1% 377 448 18.8%
Interest 48 27 -43.8% 201 111 -44.7%
Depreciation 40 61 50.0% 192 236 22.7%
Profit before tax 688 1,110 61.3% 2,092 4,199 100.7%
Tax 94 192 103.8% 360 803 123.4%
Profit after tax/(loss) 594 918 54.6% 1,733 3,396 96.0%
Net profit margin (%) 17.1% 18.0%   12.4% 16.6%  
No. of shares (m) 257 308   257 308  
Diluted earnings per share (Rs)*         11.0  
Price to earnings ratio (x)*         27.0  
* On a trailing 12 months basis

What has driven growth in 4QFY10?
  • Growth in sales was aided by strong performance by the domestic soaps segment, the hair colorant segment and the international business. Domestic soap segment grew by 17.4% YoY during the year. This growth was ahead of the market, resulting in market share increase of 0.9% to 10.3% for the year. This performance was a result of relaunch of products across all price points. Hair colorant segment with a growth of 19.1% also grew ahead of the market. The growth came on the back of increase in penetration levels. International business which contributes 19% to the total sales grew by 21% YoY. This growth was a result of robust all-round performance in all geographies.

      4QFY09 4QFY10 FY09 FY10
    Total Cost of goods 50.2% 44.5% 55.0% 46.3%
    Staff Cost 7.0% 6.4% 6.3% 9.2%
    Advertising 4.4% 6.8% 7.1% 8.4%
    Other Expenditure 18.1% 21.2% 16.6% 16.0%

  • Godrej's operating income grew by 94% YoY during the year, aided by lower input costs. Total input costs fell by 8.7% as a percentage of sales, thanks mainly due to decline in palm oil prices. Operating income could have been higher but for higher employee expense as well as increase in advertisement costs. Employee costs increased by 114% YoY due to payment of higher compensation as a reward for achieving higher growth. Advertisement expense grew by 73% YoY which helped support higher sales growth.

  • Net profit of the company grew by 96% YoY during FY10. This strong performance came on the back of higher operating profits and lower interest costs. Increase in net profits was capped as a result of higher effective tax rate.

What we expect?
At the current price of Rs 298, the stock is trading at a multiple of 21.8 times our estimated FY12 earnings. The top line and bottom line for the year were higher than our estimates for the year. This was due to a stronger than anticipated growth for all segments and inclusion of the financials of Godrej Sara Lee. During the year, Godrej acquired stakes in two companies, Tura in Nigeria and Megasari in Indonesia. While financial details are not available, the revenue for Megasari is expected to be Rs 5.5 bn for FY11. The company is expected to continue its strong growth in the future helped by its new acquisitions and better synergies in its international business. We will update our financial assumptions for the company shortly.

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