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Godrej Consumer: Pressure quarter…

Jul 23, 2003

Godrej Consumer Products Limited (GCPL) growth engine seems to have finally fallen prey to the difficult market conditions. The company declared a marginal 1% growth in its operational income during the June quarter. Market pressure was evident in the shrinking of its operating margins. The company finished the quarter with an 8% net profit growth.

(Rs m)1QFY031QFY04ChangeFY03YoY Change
Net Sales1,1491,1792.6%4,7012.5%
Processing Charges3111-63.4%59-5.4%
Total operating income1,1791,1900.9%4,7602.4%
Other Income220.0%14-14.1%
Expenditure9691,0053.7%3,9571.6%
Operating Profit (EBDIT)210185-11.8%8046.5%
Operating Profit Margin (%)18.3%15.7% 17.1% 
Interest (net)76-13.0%27-39.9%
Depreciation2323-0.9%90-4.3%
Profit before Tax182158-13.0%70110.8%
Tax (including deffered tax)5420-63.0%165-22.4%
Profit after Tax1281388.2%53627.6%
Net profit margin (%)11.1%11.7% 11.4% 
Effective tax rate (%)29.8%12.7% 23.6% 
No. of Shares (eoy) (m)58.457.4 57.7 
Diluted earnings per share*8.99.6 9.3 
P/E ratio 13.0 13.5 
(* annualised)     

The sales of Godrej brand portfolio was up 2.4% during the quarter, a far cry from the 9% topline growth during June quarter last year. While soaps registered a respectable 6.7% growth, hair colour growth slowed down to nearly 3% (11% in 1QFY03). The company has attributed this sluggishness in performance to the VAT uncertainty and the transport strike in April 2003.

(Rs m)1QFY031QFY04Change
Godrej Brands   
Soaps 6577016.7%
Hair Colour2852932.8%
Toiletries9465-30.4%
Liquid Detergents6837.5%
Total Godrej Brands1,0421,0672.4%
Contract Manufacturing455828.0%
By Products6254-12.6%
Total1,1491,1792.6%

Raw material costs ruled strong during the quarter (almost 52% of operating income). This was largely on account of strength in international prices of inedible palm oil. The company's advertising spends at 8.7% of revenues, were lower than last year's 11.8%. Overall higher costs put pressure on margins, which dipped by 260 basis points to 15.7%.

Cost break-up
(Rs m)1QFY031QFY04Change
Raw material54661612.7%
Staff6157-6.4%
Advertising & promotion140103-26.2%
Others2232292.9%
Total expenditure9691,0053.7%

GCPL bought over the 'Snuggy' baby diaper brand during the quarter for Rs 59 m. The company seems to have big plans for this category going forward. The company has restructured its business into Soaps and Personal Care divisions from this quarter. Currently, the sales mix is skewed in favour of soaps (69%). Going forward, diapers is likely to add business to its personal care category.

GCPL managed to post a positive bottomline growth backed by lower tax outgo. The company continues to look at states that offer incentives and tax exemption. The company is likely to set up operations in Himachal Pradesh encouraged by the state government's tax exemption. Had it not been for the lower tax outgo, GCPL would have finished the June quarter with a dip in bottomline growth.

At Rs 126 the stock trades at 13x annualised 1QFY04 earnings, market cap to sales of 1.5x. The company has declared an interim dividend of Rs 2 per share. Though the June quarter results are not too enthusing, Godrej's focused strategy has led it to outperform the sector, atleast in the soaps category. The company continues to look for growth through new product launches and renewed focus on personal care. The long term prospects of the company look good.

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