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Godrej Consumer: The 'glow' is missing - Views on News from Equitymaster
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  • Oct 22, 2001

    Godrej Consumer: The 'glow' is missing

    Godrej Consumer Products Limited (GCPL) has declared its second quarter results quite recently. Let's take a look at what this relatively new baby has to show for itself.

    (Rs m) 1QFY02 2QFY02 1HFY02
    Sales 1,404 1,126 2,529
    Other operating income 26 69 95
    Total operating income 1,430 1,195 2,625
    Other Income 1 5 6
    Expenditure 1,255 1,008 2,263
    Operating Profit (EBDIT) 175 186 362
    Operating Profit Margin (%) 12.5% 16.5% 14.3%
    Interest (net) 15 11 25
    Depreciation 23 23 46
    Profit before Tax 138 157 296
    Tax (including deffered tax) 46 51 97
    Profit after Tax 92 107 198
    Net profit margin (%) 6.5% 9.5% 7.8%
    Effective tax rate (%) 33.6% 32.3% 32.9%
    No. of Shares (eoy) (m) 59.8 59.8 59.8
    Diluted earnings per share* 6.1 7.1 6.6
    P/E ratio 8.6 7.4 8.0
    (* annualised)      

    GCPL is a result of the demerger of the consumer products division of the former Godrej Soaps Limited. The company is a major player in the Indian FMCG market with presence in the personal, hair, household and fabric care categories. It has leading brands such as 'Cinthol', 'Fairglow', 'Allcare', 'Nikhar', 'Godrej No.1', and Shikakai in the soaps category. Its brands in other product categories include Godrej Fairglow fairness cream, Godrej shaving cream & hair dyes, Colour Soft hair colour, Colour Gloss shampoo and Ezee liquid detergent.

    GCPL's second quarter performance is nothing to write home about. According to the company's press release, GCPL has logged a marginal 3% turnover growth YoY during the quarter. This is poor as compared to a 35% growth YoY in the first quarter. However, it must be said here that in the first quarter, GCPL had a large contribution from contract manufacturing during 1QFY02. The management had warned at the time that it is unlikely to continue.

    Cost break-up
    (Rs m) 2QFY02 % of sales 1HFY02 % of sales
    Material 463 41.1% 1114 44.0%
    Excise duty 140 12.4% 301 11.9%
    Staff 48 4.3% 93 3.7%
    Advertising & promotion 159 14.1% 363 14.3%
    Others 198 17.6% 392 15.5%

    The company's management has not released last year's profit figures as they say it is very difficult to find the segregated numbers. As such, the bottomline growth in anybody's guess. Though the company's operating margins have improved, this is because of higher other operational income like sale of by products and processing fees for contract manufacturing. If we exclude this income then operating margins have declined by 20 basis points quarter on quarter (as compared to 1QFY02) to 10.4%. This other operational income has also improved GCPL's net margins, otherwise the net margins have actually fallen.

    Sales mix
    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Soaps 617 662 7.3% 1,157 1,326 14.6%
    Hair colour 214 247 15.6% 433 526 21.5%
    Toileteries 111 89 -19.2% 177 192 9.0%
    Liquid detergents 20 23 17.3% 28 26 -4.5%
    Total Godrej Brands 961 1,022 6.3% 1,794 2,071 15.4%
    Contract manfacturing 131 104 -20.7% 337 459 36.2%
    Total Sales 1,092 1,126 3.1% 2,131 2,530 18.7%

    On a half yearly basis, the company's turnover YoY has improved by 19%. But this is largely the 1QFY02 contract manufacturing numbers. Going by the numbers in 2QFY02 it becomes evident that the company has been facing pressure in the market. However, its market share data is heartening to see. In toilet soaps GCPL's share has improved to 5.7% in August 2001 as per ORG data (5.4% in August 2000), hair colours share has gone up to 43.9% in August 2001 from 40.1% in August 2000 and liquid detergents too, has seen an improvement.

    Market share
      Aug'00 Aug'01
    Toilet soaps 5.4% 5.7%
    Hair colour 40.1% 43.9%
    Liquid detergent 58.0% 68.1%
    Shaving cream 11.4% 10.5%
    Fairness cream 1.1% 3.4%
    Talcum powder 2.1% 1.5%
    Source: Godrej financial presentation, ORG Data

    Notwithstanding the lacklustre 2QFY02 financial performance, the Godrej group looks more focused on its FMCG business than in the past. The company's debt restructuring continued in 2QFY02. It repaid Rs 98 m debt during the quarter. All in all, GCPL's debt has come down by Rs 442 m since April 2001. Its current outstanding debt stands at Rs 253 m. As a result, the company's interest burden has declined by 28% in 2QFY02, as compared to 1QFY02.

    The company declared Rs 2 per share interim dividend during the quarter and has also indicated that it may buyback shares of the company at a maximum price of Rs 100 per share, with a maximum outlay of Rs 100 m.

    On the operational front, the company still has to perk up its consistency. However, the company's restructuring measures are giving the company a much needed focus. These are also changing the perception about the company's management and if this continues this would add to the company's shareholder wealth.

    At the current price of Rs 53 the stock trades at a P/E of 8x its 1HFY02 annualised earnings. These valuations are among the lowest in the FMCG circle. The management's past performance continues to cast a shadow on the valuations. However, if the company can maintain the restructuring initiatives and improve its operational consistency then the valuations would definitely see an upswing. The proposed buyback offer could also be a short term trigger.



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    Aug 21, 2017 03:37 PM


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