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Godrej Cons: Soaps keeping competition at bay - Views on News from Equitymaster
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Godrej Cons: Soaps keeping competition at bay
Oct 30, 2009

Performance summary
  • Sales during 2QFY10 grew by 65% YoY. This came on the back of strong domestic and international demand.
  • Operating (EBITDA) margin improved by 7.3% YoY during the quarter. This came on the back of lower raw material costs.
  • Net profits grew by 168% YoY during the quarter, aided by improved operating margins and higher other income.


Consolidated financials
(Rs m) 2QFY09 2QFY10 % Change 1HFY09 1HFY10 % Change
Net sales 3,497 5,765 64.9% 7,147 10,162 42.2%
Expenditure 3,068 4,637 51.1% 6,188 8,161 31.9%
Operating profit (EBDITA) 429 1,129 163.0% 959 2,001 108.7%
EBDITA margin (%) 12.3% 19.6%   13.4% 19.7%  
Other income 91 129 42.2% 150 223 48.8%
Interest 45 26 -42.5% 92 64 -30.6%
Depreciation 46 68 46.0% 101 120 18.0%
Profit before tax 428 1,164 171.8% 915 2,041 122.9%
Tax 81 234 189.0% 177 414 133.7%
Profit after tax/(loss) 347 930 167.8% 738 1,627 120.4%
Net profit margin (%) 9.9% 16.1% 6.2% 10.3% 16.0%  
No. of shares (m) 258 257   258 257  
Diluted earnings per share (Rs)*         10.2  
Price to earnings ratio (x)*         27.3  
* On a trailing 12 months basis

What has driven growth in 2QFY10?
  • Growth in sales was aided by strong performance in the domestic soaps segment, which grew by 28% YoY during the quarter. The soaps portfolio grew ahead of the market, thereby increasing its market share to 10.9% in the face of stiff competition. The soaps portfolio was supported by the hair colorant portfolio which also grew ahead of its category to capture a market share of 34.7%. The international business contributed to the company’s overall topline performance with a strong growth of 22% YoY.

  • Godrej’s operating income grew by 163% during the quarter, aided by falling input costs. Total input costs fell by 9.4% as a percentage of sales, thanks mainly due to decline in vegetable oil and crude oil prices. Operating income could have been higher but for the higher employee expense which increased by 150% YoY due to payment of higher compensation as a reward for achieving higher growth as well as increase in advertisement costs. The advertisement expense grew by 109% YoY which helped support higher sales growth.

  • Net profit of the company grew by 168% YoY during 2QFY10. This came on the back of higher sales and operating income.

What to expect?
At the current price of Rs 278, the stock is trading at a multiple of 27.3 times our estimated FY12 earnings. We believe that Godrej has benefited from having a portfolio across the consumer pyramid and by increasing prices conservatively. This has resulted in the company increasing its market share. While its margins have increased thanks to drop in raw material costs, we believe this is more of a medium term phenomenon. The company has performed much better than our expectations and we will be possibly upgrading our forward estimates after meeting the management.

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