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Godfrey Phillips: Margins take a hit
Nov 5, 2009

Performance summary
  • Net sales grow 17.5% YoY during 2QFY10, helped by a 17% growth in cigarette sales.
  • Operating margins contract by 5.6% YoY during the quarter owing to higher raw material costs and higher advertising and sales promotion costs.
  • Net profits falls 36% YoY during the quarter owing to the fall in operating margins.


Financial performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Gross sales 5,533 5,829 5.3% 10,883 12,824 17.8%
Excise duty 2,881 2,711 -5.9% 5,656 5,922 4.7%
Excise duty (%) 52% 47%   52% 46%  
Sales 2,652 3,118 17.5% 5,227 6,902 32.1%
Expenditure 2,307 2,888 25.2% 4,543 6,070 33.6%
Operating profit (EBDITA) 346 229 -33.7% 684 832 21.7%
Operating profit margin (%) 13.0% 7.4%   13.1% 12.1%  
Other income 225 137 -39.2% 376 449 19.3%
Interest 24 21 -12.7% 37 36 -0.3%
Depreciation 68 77 12.6% 116 151 30.5%
Profit before tax 479 268 -43.9% 907 1,093 20.4%
Tax 138 51 -63.0% 276 299 8.6%
Profit after tax/(loss) 340 217 -36.2% 632 794 25.6%
Net profit margin (%) 12.8% 7.0%   12.1% 11.5%  
No. of shares       10.4 10.4  
Diluted earnings per share (Rs)*         120.3  
* On a trailing 12 months earnings

What has driven performance in 2QFY10?
  • The 17.5% YoY growth in GPI’s net sales during 2QFY10 was a result of a strong performance from its cigarettes and tobacco products business divisions which saw its sales grow by 17% YoY. Tea and other retail products too saw a healthy growth of 19% YoY during the quarter.

    Segment-wise performance
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Cigarettes & Tobacco Products            
    Revenue 2,465 2,884 17.0% 4,902 6,464 31.9%
    % share 90.9% 90.7%   91.8% 92.0%  
    PBIT margin 18.5% 8.5%   17.9% 13.2%  
    Tea & other Retail Products            
    Revenue 248 295 18.9% 437 563 28.9%
    % share 9.1% 9.3%   8.2% 8.0%  
    PBIT margin -23.8% -9.7%   -19.2% -7.3%  
    Total            
    Revenue 2,713 3,179 17.2% 5,339 7,027 31.6%
    PBIT margin 14.7% 6.8%   14.9% 11.6%  

  • However, higher raw material costs and higher sales and promotion costs (both as percentage of sales) took away from GPI’s operating margins; they fell to 7.4% in 2QFY10 as against 13% in 2QFY09.

  • On the back of a fall in the operating margins, GPI’s net profits fell by 36% YoY during 2QFY10. Higher depreciation and lower other income as compared to the same quarter last year too contributed to the weak bottomline performance.

What to expect?
At the current price of Rs 1,750, the stock is trading at a multiple of 12.1 times our estimated FY12 earnings. We maintain our positive view on the stock from a long term perspective.

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