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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) 1QFY03 1QFY04 Change FY03 YoY Change
Net Sales 1,149 1,179 2.6% 4,701 2.5%
Processing Charges 31 11 -63.4% 59 -5.4%
Total operating income 1,179 1,190 0.9% 4,760 2.4%
Other Income 2 2 0.0% 14 -14.1%
Expenditure 969 1,005 3.7% 3,957 1.6%
Operating Profit (EBDIT) 210 185 -11.8% 804 6.5%
Operating Profit Margin (%) 18.3% 15.7%   17.1%  
Interest (net) 7 6 -13.0% 27 -39.9%
Depreciation 23 23 -0.9% 90 -4.3%
Profit before Tax 182 158 -13.0% 701 10.8%
Tax (including deffered tax) 54 20 -63.0% 165 -22.4%
Profit after Tax 128 138 8.2% 536 27.6%
Net profit margin (%) 11.1% 11.7%   11.4%  
Effective tax rate (%) 29.8% 12.7%   23.6%  
No. of Shares (eoy) (m) 58.4 57.4   57.7  
Diluted earnings per share* 8.9 9.6   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) 1QFY03 1QFY04 Change
Godrej Brands      
Soaps 657 701 6.7%
Hair Colour 285 293 2.8%
Toiletries 94 65 -30.4%
Liquid Detergents 6 8 37.5%
Total Godrej Brands 1,042 1,067 2.4%
Contract Manufacturing 45 58 28.0%
By Products 62 54 -12.6%
Total 1,149 1,179 2.6%

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) 1QFY03 1QFY04 Change
Raw material 546 616 12.7%
Staff 61 57 -6.4%
Advertising & promotion 140 103 -26.2%
Others 223 229 2.9%
Total expenditure 969 1,005 3.7%

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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