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Godfrey Phillips: Profitability up on lower costs
Jun 13, 2011

Godfrey Phillips India Limited has announced its fourth quarter results for financial year 2010-2011 (4QFY11). The company has reported a 29.7% YoY growth in sales and a 294% growth in net profits. Here is our analysis of the results.

Performance summary
  • Godfrey Phillips' sales for 4QFY11 grew by 29.7% YoY largely aided by higher sales in the cigarette and tobacco segment.
  • Operating (EBITDA) margin grew by 11.6% to 19.9% during the quarter. This growth was the result of fall in raw material costs as a percentage of sales during the quarter.
  • Net profit increased by 294%. This performance was on the back of increase in operating income and higher other income.
  • Net profit for FY11 grew by 40.3% YoY while net profit margin increased by 1.8%. This performance comes on the back of higher operating income partly offset by fall in other income, higher interest costs and higher effective tax rate.


(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 3,573 4,634 29.7% 14,079 16,320 15.9%
Expenditure 3,278 3,710 13.2% 12,409 13,622 9.8%
Operating profit 295 924 213.2% 1,669 2,698 61.6%
Operating margins (%) 8.3% 19.9%   11.9% 16.5%  
Other Income 24 50 111.8% 413 216 -47.8%
Interest (net) 15 26 71.5% 69 99 42.8%
Depreciation 92 123 34.1% 339 400 18.0%
Profit before Tax 212 825 289.3% 1,674 2,415 44.3%
Extraordinary item - -   - -  
Tax 69 262 278.9% 490 754 53.9%
Profit after Tax/(Loss) 143 563 294.4% 1,184 1,660 40.3%
Net profit margin (%) 4.0% 12.2%   8.4% 10.2%  
No. of Shares (m) 10 10   10 10  
Diluted earnings per share (Rs)*         159.7  
Price to earnings ratio (x)*         12.8  
* trailing twelve month earnings

What has driven performance in 4QFY11?
  • The strong growth in the company's sales was a result of a strong performance from its cigarettes and tobacco products business divisions. Sales of cigarettes and tobacco products grew by 31.1% YoY during the quarter. Tea and other retail products saw a growth of 15.6% YoY.

    Segment-wise performance
    (Rs m) 4QFY11 4QFY10 Change FY10 FY11 Change
    Cigarettes & Tobacco Products            
    Revenue 3,248 4,258 31.1% 12,869 14,929 16.0%
    % share 90.9% 91.9%   91.4% 91.5%  
    PBIT margin 7.0% 18.8%   11.0% 15.7%  
    Tea & other Retail Products            
    Revenue 325 376 15.6% 1,210 1,390 14.9%
    % share 9.1% 8.1%   8.6% 8.5%  
    PBIT margin -6.7% 0.8%   -5.6% -1.1%  
    Total            
    Revenue 3,573 4,634 29.7% 14,079 16,320 15.9%
    PBIT margin 9.2% 11.6%   8.1% 9.3%  

  • Operating income during the quarter increased by 213% YoY due to slower growth in raw material costs as compared to sales and fall in advertisement costs. Raw material costs increased by 4.8% YoY while advertisement costs fell by 4.3% YoY. Operating income would have been higher but for an increase of 60% in staff costs.

  • Godfrey Phillip's net profit grew by 294% YoY. This is due to higher operating income and lower effective tax rates. Effective tax rates fell from 32.6% in 4QFY10 to 31.7% in 4QFY11.

What we expect?
At a price of Rs. 2,050 the stock is trading at 14.2 times our estimated FY12 earnings. We have a 'HOLD' view on the stock.

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