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Godrej Cons.: Soaps cleaning up the competition - Views on News from Equitymaster

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Godrej Cons.: Soaps cleaning up the competition
Jul 27, 2009

Performance summary
  • Consolidated net sales grow by 21% YoY during 1QFY10. This is on the back of strong performance in all the categories, especially soaps. The company’s market share for soaps increase to over 10% at the end of the quarter, up from 9.1% in 1QFY09.
  • Operating (EBITDA) margins increased from 14% in 1QFY09 to 20% in 1QFY10, thanks largely to falling vegetable oil prices.
  • Net profits grow by 78% YoY and net profit margins expand to 16% due to higher other income and lower interest costs.
  • The company has declared a dividend of Re 1 per share (dividend yield of 0.5%).


Consolidated financials
(Rs m) 1QFY09 1QFY10 % Change
Net sales 3,646 4,396 20.6%
Expenditure 3,121 3,525 13.0%
Operating profit (EBDITA) 525 871 65.8%
EBDITA margin (%) 14.4% 19.8%  
Other income 63 94 48.7%
Interest 47 38 -18.9%
Depreciation 55 52 -5.6%
Profit before tax 487 875 79.8%
Tax 96 179 86.9%
Profit after tax/(loss) 391 696 78.0%
Net profit margin (%) 10.7% 15.8%  
No. of shares (m) 258.1 257.0
Diluted earnings per share (Rs)*   7.9
Price to earnings ratio (x)* 26.8
* On a trailing 12 months basis

What has driven growth in 1QFY10?
  • Godrej’s sales growth during 1QFY10 was driven by strong performance in both the domestic and international markets. While the former clocked growth of 22% YoY, the latter grew by 21% YoY. As for the company’s business segments, ‘soaps’ grew by 27% YoY. Of this, while volume growth stood at 15%, pricing improved by 11%. Growth in this category has come on the back of higher advertisement and sales promotion, focus on increased penetration in the rural areas and launch of unit package at strategic price points.

  • Hair color business witnessed a growth of 20% YoY during the quarter while the category growth was 14%. The company increased its market share in this category from 34% in 4QFY09 to 34.4% in 1QFY10.

  • Godrej’s rural focus has paid it rich dividends with 35% of growth coming from these areas. The company is targeting 50% of its growth in the next 3 years coming from rural areas.

  • Overall, while the company has seen pricing improve across all its segments, it has still absorbed a part of the input cost inflation, which has enabled it to gain market share at the cost of competitors who passed on the entire cost inflation as higher prices to customers.

What to expect?
At the current market price of Rs 212, the stock is trading at a multiple of 24 times our estimated FY12 earnings. The company has witness good volume growth and has seen margin expansion thanks to falling vegetable oil prices. Since the company has performed much better than our expectations, we will soon upgrade our forward estimates on the company.

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