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Godrej Consumer: Margin woes continue
May 5, 2009

Performance summary
  • Consolidated topline grows by 27% YoY during FY09. While the domestic business grows by 23% YoY, on the international front, the sales are higher by 43% YoY during the year.
  • The company gains market share in soaps and hair colour category.
  • For the full year, the consolidated margins decline by 4.7% YoY to 14.8% on account of higher raw material costs.
  • Cosolidated profits during FY09 are lower than our estimates by 6%, mainly due to subdued operating margins.


Consolidated picture
(Rs m) 4QFY08 4QFY09 (%) Change FY08 FY09 (%) Change
Gross sales 2,815 3,492 24.1% 11,330 14,352 26.7%
less: excise duty 97 65 -32.5% 305 423 38.8%
Net sales 2,732 3,427 25.4% 11,040 13,966 26.5%
Expenditure  2,166 2,766 27.7% 8,881 11,893 33.9%
Operating profit (EBDITA) 566 661 16.8% 2,159 2,074 -3.9%
EBDITA margin (%) 20.7% 19.3% 19.6% 14.8%
Other income -    7  -    26 51 93.1%
Interest 34 (60) 129 (160)
Depreciation 43 40 -6.9% 182 192 5.8%
Profit before tax 489 688 40.6% 1,875 2,092 11.6%
Tax 81 94 16.1% 283 360 27.3%
Profit after tax/(loss) 408 594 45.4% 1,592 1,733 8.8%
Net profit margin (%) 14.9% 17.3%   14.4% 12.4%  
No. of shares (m) 225.8 257   225.8 257
Diluted earnings per share (Rs)* 6.7
Price to earnings ratio (x)*     21.1
* 12 month trailing

What has driven performance in FY09?
  • GCPL reported a consolidated topline growth of 27% YoY during the year. This is higher than our estimates by 11%. While the domestic business grew by 23% YoY, on the international front, the sales were higher by 43% YoY during the year. Soaps reported a 25% YoY growth, due to a low base and pipeline fill for new products. Revenues from hair colour and liquid detergents saw a more than 10% YoY increase. The company had re-launched Godrej Expert Hair Dye, which aided the performance. On a standalone basis, the company yet again outperformed the soap industry off take by growing at 46% YoY against 21%. However, the hair colour offtake was lower at 20% as compared to 24% of the industry.

    Consolidated sales breakup
    Rs m 4QFY08 4QFY09 (%) Change FY08 FY09 (%) Change
    Soaps 1,260 1,840 46.0% 5,690 7,135 25.4%
    Hair Colour 697 804 15.3% 2,518 2,780 10.4%
    Toiletries 633 689 8.8% 2,239 3,152 40.8%
    Liquid Detergents 67 55 -17.7% 385 428 11.4%
    Contract Mfg. -   -   -   82
    Total Godrej Brands 2,658 3,388 27.5% 10,832 13,578 25.4%
    By-products 61 40 -34.7% 194 352 81.4%
    Total 2,718 3,427 26.1% 11,026 13,930 26.3%

  • For the full year, the consolidated margins declined by 4.7% YoY to 14.8%. This is lower than our estimates of 18.6%. While all the other expenses have declined as a percent of sales, raw material costs jumped to 55% of sales from 47% in FY08, mainly on account of soaps divisions. Even in the domestic business, the margins reduced to 15%, down 6% YoY.

  • The consolidated profits during FY09 are lower than our estimates by 6%, mainly due to subdued operating margins. The 9% growth in bottomline for the full year was aided by higher other as well as interest income. Similar growth was seen in the domestic performance. The international profits saw a muted growth of 5% YoY, mainly due to lower growth in topline and unfavorable currency movement.

What to expect?
At the current price of Rs 146, the stock is trading at a price to earnings multiple of 16.5 times our estimated FY11 earnings. While the margin pressure continues, the company has done well on the topline front. The gain in the market share, especially hair colour segment is a positive sign, indicating company’s new launches and brand building activity paying off. With regard to its international operations, GCPL would continue to focus on value creation. We will update the model post the analyst meet scheduled on 19th May.

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