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Godrej Consumer: On the right track

Aug 9, 2001

Godrej Consumer Products, the demerged FMCG business of erstwhile Godrej Soaps, recently declared its first ever quarterly results. The company posted a net profit of Rs 92 m on sales of Rs 1,404 m during the quarter. The turnover is up 35% compared to first quarter of last year.

(Rs m) 1QFY02
Net Sales 1,404
Other Income 27
Expenditure 1,255
Operating Profit (EBDIT) 149
Operating Profit Margin (%) 10.6%
Interest (net) 15
Depreciation 23
Profit before Tax 138
Tax (including deffered tax) 46
Profit after Tax 92
Net profit margin (%) 6.5%
Effective tax rate (%) 33.6%
No. of Shares (eoy) (m) 59.8
Diluted earnings per share* 6.1
P/E ratio 7.9
(* annualised)  

Most of the segments in which Godrej Consumer operates in have shown a good growth. A huge 55% growth (value terms) in toileteries has come largely because of good response to 'Fairglow' range of products. Contract manufacturing has also shown a good growth this quarter. However, the management has indicated that this trend in contract manufacturing may not continue in the coming quarters.

(Rs m) 1QFY01 1QFY02 Change
Soaps 540 664 23.0%
Hair colour 219 279 27.4%
Toileteries 66 103 56.1%
Detergents 8 3 -58.0%
Total Godrej Brands 833 1,049 26.0%
Contract manfacturing 206 355 72.3%
Total Sales 1,039 1,404 35.2%

The management looks more focused on its FMCG business than in the past. The company's relaunch of its brand 'Godrej No. 1' has resulted in a 318% growth in volume sales during 1QFY02. The company is re-launching its key brand 'Cinthol' soon.

On the financial side, the company has repaid Rs 344 m of its debt during the quarter. Its debt stands reduced to Rs 351 m currently. Godrej Consumer is now operating on a negative working capital and the management looks keen to maintain this.

Cost break-up
(Rs m) 1QFY02 % of sales
Material 651 46.4%
Excise duty 161 11.5%
Staff 45 3.2%
Advertising & promotion 204 14.5%
Others 194 13.8%

Currently, Godrej has a 5.9% market share in toilet soaps. This share has not varied much over the last few years. However, it has cornered a 3.6% share of the fairness cream segment, thanks to 'Fairglow'. The company has increased its market share in the Hair Colour segment to 44.5% this quarter. Its share was 41.8% in the corresponding quarter last year.

The first quarter performance of the company is encouraging and going by the management's commitment to this business, the future looks good, especially in the toiletries and the hair colour segment.

At the current price of Rs 48 the stock trades at a P/e multiple of 7.9 times its 1QFY02 annualised earnings. These valuations are among the lowest in the FMCG circle. Probably, the management's past performance continues to cast a shadow on the valuations. However, if the company can maintain this growth momentum and its focus, valuations would definitely see an upswing.

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