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Godrej Consumers: Analyst meet extracts
Jun 11, 2008

Recently, Godrej Consumers (GCPL) held an analyst meet. In this article, we highlight the key takeaways. New initiatives: In FY08, the company had a slew of new initiatives and launches. While the Cinthol brand across the soap, talc and deo spray segments was relaunched, new variants in Godrej No 1 were introduced. Godrej Powder Hair Dye was relaunched as Godrej Expert Hair Dye and new colours in Renew were introduced. While the soap category grew by 9.6% in FY08, GCPL grew by 19.3% YoY, yet again beating the industry. In the hair colour segment, the company witnessed a 12% YoY growth as against the industry growth of 13.3%. The company continues to be a leader in this segment with 54% of its hair colour revenues coming from the powder hair dye. It is trying to establish its presence in the premium segment.

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    Capacities: GCPL invested Rs 1.1 bn towards capacity expansion in the last 2 years. The new Katha plant for soap manufacturing (45,000 tonnes) in Himachal Pradesh started operations in December 2006, while the Sikkim Plant involved in manufacturing of hair colourants and toiletries was operational in March 2007. Even the Malanpur plant is completed and started the commercial production in May 2008. Further, it closed down the UK plant and will start outsourcing Keyline products. This will help save costs. For the coming year, the company has minimum capex requirements.

    International operations: The international operations have grown 125% CAGR over the last 2 years. It contributes nearly 20% of the total revenues. The company now reaches 38 countries. In FY08, it made the first shipment of GCPL products to Keyline and Rapidol. This is a part of its strategy to make GCPL a global brand and also launch the international brands in the domestic markets.

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    Acquisitions: Keyline Brands acquired ‘Touch of Silver ‘and ‘Henara’ from Henkel UK. Both the brands have a range of products in the hair care segment. The turnover was £ 700,000 in 2006. These brands will enhance GCPL’s product portfolio and also give access to larger customer base. In October 2007, it acquired 100% subsidiary of Godrej International, Godrej Global Mideast FZE (GGME) at a total cost of Rs 58 m. GGME earned Rs 49 m revenues for 2HFY08. GCPL through this acquisition will get an established presence in the Middle East regions.

    GCPL also completed the acquisition of the Kinky Group in April 2008. The company is the leader in the natural and artificial hair business in South Africa. It also has other hair care products. It earned revenues of about South African Rand 85 m (approx Rs 468 m) and has margins of around 30%. GCPL acquired it for South African Rand 265 m (approx Rs.1, 458 m) With 90% of the African women using artificial hair, management of GCPL is excited about the acquisition. It presents an opportunity to enter new line of businesses and also widen distribution base for its products.

    The company also raised Rs 3.96 bn through rights issue at an offer price of Rs 123 per share. Of the offer proceeds, Rs 1.3 bn is to be used to fund the acquisition of the Kinky group, Rs 1.1 bn towards facilities for making soap and chemicals at Baddi and the balance towards repayment of debt and investments in a Netherlands-based joint venture and one for hygiene products.

    Going forward:
    GCPL changed its brand identity to a more colorful one to appeal to the younger mindset. Its focus is to launch new offerings and sustain a powerful link between brand investments and brand results. Though soaps have witnessed accelerated growth in recent quarters, the price hikes taken in the last quarter has resulted in slowdown in volumes as the consumers for mass brands remain price-sensitive, making it difficult to put through price increases. Further, it is also planning to invest more in ad spends and brand building, indicating the competitive pressures.

    Also with commodity prices not relenting, pressure on margins is likely to sustain. Going forward we think that GCPL’s earnings prospects over the medium term will largely depend on its recent organic and inorganic growth initiatives. Its acquisitions are yet to contribute significantly to its revenues. Further, on the domestic front too, it is witnessing higher competition and margin pressures. At the current juncture, since the probability of going wrong in our projections, especially on its acquisitions seems to be on the higher side, we have chosen to remain conservative in our estimates. However, the valuations still seem moderately attractive to us.

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