Mid-cap FMCG companies are the flavour of the season. With these companies largely growing in double digits, valuations look attractive to the investor. In this light, let us take a look at Godrej Consumer. The company reported a decent 12% growth in the first half of FY05 led by strength in its soaps and hair colour businesses. This and nearly 100 basis point improvement in operating margins led the company to report over 25% growth in bottomline during 1HFY05.
Operating profit (EBDITA)
EBDITA margin (%)
Profit before tax
Profit after tax
Net profit margin (%)
No. of Shares (m)
Diluted earnings per share* (x)
Price to earnings ratio (x)
What is the company’s business?
Godrej Consumer Products Ltd. is one of the most well known mid-cap companies in the Indian FMCG space with presence in the personal care, hair care and fabric care categories with top-of-the-mind brands such as Cinthol, Fairglow, and Godrej No.1 (soaps), Fairglow fairness cream, Godrej Shaving Cream & Round, Godrej hair dyes, Colour Soft hair colour and Ezee liquid detergent. The company recently bought over the ‘Snuggies’ brand in the child nappy segment. Soaps and hair colours form over 85% of the company's revenues.
What has driven performance in 2QFY05?
Sales: Growth was driven by strong showing from its soaps business (64% of revenues). The segment grew by a strong 18% YoY during 1HFY05. Though hair colour too, grew by nearly 10% during the period, the growth pattern has been inconsistent. Hair colours (23% of revenues) grew by over 19% during the June quarter, but witnessed a marginal dip in the September quarter. On the whole however, the growth numbers are much better compared to those witnessed in FY04 (13.3% YoY for soaps and a dip of 2.2% in hair colours). The company has introduced new variants in its hair colour business, in a bid to sustain its growth momentum.
Total Godrej Brands
Operating margins: While most of the significant cost heads like cost of goods, advertising and staff costs as a percentage of sales went up during the quarter, Godrej Consumer managed to improve its margins led by a decline in other expenditure as a percentage of sales (from 19.4% of sales last year to 15.6% in 1HFY05). If we look at it the other way, the PBIT margins of both the soaps and personal care business improved over last year. While margins for soaps improved from 8.6% in 1HFY04 to 10.3%, personal care margins (including hair colour) escalated to 36.6% from 35.1% earlier.
as a % of net sales
Total Cost of goods
Advertisement & Promotion
Over the last five quarters
In the past year, Godrej Consumer, has managed to sustain its topline trend led by strength in its core business, as well as support from its contract manufacturing initiative. Tax sops have also resulted in lower tax burden.
Sales growth (YoY)
Advertising as % of sales
Net profit growth (YoY)
What to expect?
Buoyed by its 1HFY05 performance, Godrej Consumer has declared cumulative interim dividends amounting to Rs 4 per share till date. At Rs 235, the stock trades at a P/E of 19 times annualised 1HFY05 earnings and market cap. to sales of 2.5x. The company's new plant at Baddi in Himachal Pradesh will give it a 10 year excise and income tax benefit. This will therefore, continue to help it cut costs and keep up healthy margins in the medium term. The management is shareholder friendly on account of its continuous dividend payouts and buyback programme, but in our view, the valuations already factor in some of these positives.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407