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Godrej Cons: One time income boosts profits
Jul 26, 2011

Godrej Consumer Products Ltd. has announced its first quarter results of financial year 2011-2012. The company has reported a 39.2% YoY and 94.2% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line for Godrej Consumer Products Limited grew by 39.2% during 1QFY12.
  • Operating (EBITDA) margin fell by 3.8% YoY during the quarter. This comes on the back of higher staff costs, higher advertisement expense and other expenditure (all as a percentage of sales).
  • Net profits grew by 94.2% YoY during the quarter. This was greater than operating profit growth and was a result of exceptional gains booked during the quarter.

Consolidated financials
(Rs m) 1QFY11 1QFY12 % Change
Net sales 7,207 10,030 39.2%
Expenditure 5,869 8,550 45.7%
Operating profit (EBITDA) 1,338 1,480 10.6%
EBITDA margin (%) 18.6% 14.8%  
Other income 54 186 241.8%
Interest 106 192 81.4%
Depreciation 95 159 67.1%
Profit before tax 1,191 1,314 10.3%
Exceptional Items 403 1,752  
Tax 362 673 85.7%
Profit after tax/(loss) 1,232 2,393 94.2%
Net profit margin (%) 17.1% 23.9%  
No. of shares (m) 308 324  
Diluted earnings per share (Rs)*   19.5  
Price to earnings ratio (x)*   20.2  
* On a trailing 12 months basis

What has driven performance in 1QFY12?
  • Growth in sales was aided by strong performance by the company's domestic business and international business. Domestic business grew by 21% on the back of 17% YoY growth in domestic soap segment and 19% YoY growth in hair colorant segment. Household insecticide also contributed to the strong top line growth ending the quarter with a strong growth of 40% YoY. International business which contributes 36% grew by 93% YoY. This growth was a result of robust all-round performance in all geographies.
  • Cost break-up
      1QFY11 1QFY12
    Total Cost of goods 48.9% 48.8%
    Staff Cost 6.8% 8.0%
    Advertising 10.3% 11.7%
    Other Expenditure 15.4% 16.8%

  • Fall in the company's margins was due to faster than top line growth in staff costs, advertisement expense and other expenditure. Staff costs increased by 63% YoY while advertisement expense grew by 58% YoY. Other expenditure came in higher by 52% YoY.

  • Net profit of the company grew by 94% YoY during 1QFY12. This is greater than operating profit growth and comes on the back of compensation for the exit from the Kiwi brand.

What to expect?
At the current price of Rs 438, the stock is trading at 28.6 times our estimated FY14 earnings The company has benefited from its new acquisitions. However, going forward, once the base effect of the acquisitions gets adjusted, we expect the company's growth rate to moderate. Moreover, we expect the company's margins to be under pressure due to competition, brand building, establishing itself in new geographies and higher raw material prices. Nevertheless, we remain positive on the company's long term prospects. However, we believe that growth from 2-3 years prospective has been priced in the stock. For this reason, we advise our subscribers to be cautious on this stock.

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