Godrej Consumer Products Posts Impressive Results

Godrej Consumer Products Ltd (GCPL) has announced its June quarter numbers, reflecting decent growth. We had analysed GCPL and tagged it with a ‘buy’ recommendation in our Dalal Street Investment Journal (DSIJ) magazine’s Volume 27, Issue No 4, dated February 12, 2012 at Rs 410 per share. Post our recommendation the scrip appreciated with a leap and we had subsequently advised our readers to book profit at Rs 580 per share, resulting in 39 per cent return in just four months. The scrip continued to appreciate and is currently trading at Rs 617 per share which we at DSIJ believe is slightly on the higher side. Let us look at the June quarter numbers of the company which may help investors take the right decision. 

On a consolidated basis the net sales for the June quarter increased by 39 per cent to Rs 1,389 crore. Of the total revenue, 57 per cent of it came from the domestic market while the remaining 43 per cent was derived from its international sales. On the domestic front the company posted topline growth of 23 per cent to Rs 788 crore while on the international front its sales grew by a robust 31 per cent to Rs 601 crore. 

In the domestic market its home care and personal wash segment saw good growth while the hair care segment displayed a muted performance. The home care segment of the company grew at the rate of 27 per cent which is three times more than the industry’s average growth during the quarter. Its personal wash i.e. the soap segment grew twice the pace at 42 per cent with volume growth of 24 per cent while in the hair care segment the growth was a meagre 5 per cent as against the industry growth of around 17 to 18 per cent. According to the management, the muted growth in the hair care segment was after the company re-launched some of the products and therefore the growth curve is expected to be back in form from the September quarter of 2012.

Of the total international revenue, a major chunk of the revenue of around 45 per cent continued to be from the Indonesian market. Meanwhile, Africa, Latin America and Europe contributed around 25, 18 and 12 per cent of the international revenue. The EBIDTA margin for all the continents improved significantly, except for the European market where the margin contracted by 100 basis points. Indonesia, which contributes majorly, posted a rise of 140 basis points to 18 per cent in its EBIDTA margin. 

The company continued to focus on innovations and launched an air freshener named ‘Aer’ in India with cross-pollination from Indonesia. It also launched ‘Godrej No 1 Rosewater and Almonds’ soap in the domestic market. Further, it launched the Mitu Kids range of products in Indonesia and several hair colour products in Argentina. 

On a consolidated basis, the EBIDTA margin of the company improved by 30 basis points to 15 per cent. This was because the raw material cost to the company eased a bit which helped the company to spend more on advertisements and employees.  The advertisement to sales ratio continued to be above 11 per cent for the quarter, particularly as it had new media campaigns in the home care and hair care segments. The employee cost increased sharply by 62 per cent to Rs 128 crore while the raw material cost increased by 14 per cent to Rs 547 crore, which is less as compared to sales growth. 

According to the management, the income from its Nigerian business would be exempted from tax, which would further bring down the overall tax implication of the company approximately by 150 to 200 basis points. Over the past two years the company has been paying an average tax of around 20 per cent on earning before tax and hence we believe this time they would pay around 18 per cent of their FY13 earnings. 

GCPL posted a net profit of Rs 130 crore against Rs 239 crore, which is down by 45 per cent. This was because of a one-time non-recurring income (exceptional item) of Rs 175 crore in the June quarter last year. With this it posted EPS of Rs 3.83 per share for the June quarter of 2012. On a trailing price to earning basis, the company is currently trading at 33 times which we believe is slightly on the higher side. In our opinion, the company should command a P/E of around 30 and hence one may see some downside in the scrip. We would advise our investors to put their money in the counter in a staggering manner to garner better returns.