Godrej Consumer Products Ltd Result Update: Q4 FY 11

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1 Godrej Consumer Products Ltd Result Update: Q4 FY 11 C.M.P: Rs Target Price: Rs Date: May 4 th 2011 BUY Stock Data: Sector: FMCG Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Share Holding Pattern SYNOPSIS Godrej Consumer Products (GCPL) is a flagship company of Godrej Group. During the quarter ended, the robust growth of revenue is increased by 97.74% Rs million. GCPL International business stood at Rs.347 crore, growing at 326%. Godrej Consumer Products Ltd has completed the merger of Godrej House hold products Ltd. 1 Year Comparative Graph The top line and bottom line of the company are expected to grow at a CAGR of 39% and 32% over 2010 to 2013E respectively. Godrej Consumer BSE SENSEX ICRA has assigned to GCPL rating of "A1+" (pronounced as A one plus) for the Company's non convertible debenture programme of Rs. 200 crore. Years Net sales EBITDA Net Profit EPS P/E FY FY 12E FY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Godrej Consumer ITC HUL Marico Investment Highlights Q4 FY11 Results Update Godrej Consumer Products has posted sharp growth of 54.40% in its consolidated net profit at Rs 1, million for the fourth quarter ended Mar. 31, 2011 against Rs million in the corresponding quarter a year ago. During the quarter, Net sales are surged by 97.74% to Rs million from Rs million for the same quarter last year. Total income on consolidated basis has increased sharply by 98.66% at Rs million for Q4FY11 as against Rs million for the same quarter a year ago. The EPS of the company is stood at Rs.4.38 for the quarter ended. Quarterly Results - Consolidated (Rs in mn) As At Mar-11 Mar-10 %change Net sales PAT Basic EPS

3 Break up of Expenditure Declaration of dividend Godrej Consumer Products Ltd has declared a fourth interim dividend for the year at the rate of Rs. 1.50/-per share (150% on the face value of Re 1 /- each). Completion of merger Godrej Consumer Products Ltd has completed the merger of Godrej House hold products Ltd. This merger consolidates GCPL s position in the Indian FMCG space. Commencement of new factory The Company has commenced commercial production of personal care products at Us new factory at Brahmaputra Industrial Park, Dol Goblnda Mandir Road, Village Sila, Guwahati. 3

4 Redeemable of debentures The Company has redeemed zero coupon non convertible debentures aggregating to Rs 200 crore and made a fresh issue of zero coupon non convertible debentures aggregating to Rs. 200 crore on private placement basis. Out of these Debentures amounting to Rs. 45 crore are redeemable in December 2011 and the balance Rs. 155 crore are redeemable in January Acquired holding company The Company Incorporated Godrej Mauritius Africa Holdings Limited (w.e.f. March 14, 2011) as its 100% subsidiary, which in turn acquired Godrej Weave Holdings Limited (w.e.f. March 14, 2011) as its 100% subsidiary. Issues of QIB Company issued 15,400,100 equity shares of face value Re. 1 each at a premium or Rs. 344 per equity share to Qualified Institutional Buyers (QIB s). The pricing was equal to the floor price of Rs 345 calculated in accordance with SEBI guidelines. The issue proceeds aggregating to Rs crore has been utilized to retire debt and for general corporate purposes. Company Profile Godrej Consumer Products Ltd.(GCPL) is a major player in the Indian FMCG market with leadership in personal, hair, household and fabric care segments. The company employs 950 people and has three state-of-the-art manufacturing facilities at Malanpur (M.P.) Guwahati (Assam) and Baddi (H.P.).Their focus is on providing their customers with innovative, value for money solutions for meeting their daily needs and improving the quality of their life. This is achieved through the brands the company markets. They are among the largest marketer of toilet soaps in the country with leading brands such as CINTHOL, FAIRGLOW, GODREJ NO 1. Their FAIRGLOW 4

5 brand, India's first Fairness soap, has created marketing history as one of the most successful innovations. product range from Godrej Renew Coloursoft Liquid Hair Colours, Godrej Liquid & Powder Hair Dyes to Godrej Kesh Kala oil, Nupur based Hair Dyes. They are also the preferred supplier for contract manufacturing of toilet soaps for some of the most well-known brands in the country. Business Area The company operates in two divisions Soaps and personal care. The company is the market leader in hair colours and liquid detergents. GCPL has 9.7% market share in toilet soaps with Cinthol, Fairglow and No.1 as its key brands. Godrej No.1 has emerged as the largest selling grade one soap in India. Subsidiaries: 1. Keyline Brands Ltd 2. Rapidol (Pty.) Ltd. 3. Kinky Group (Pty.) Ltd. 4. Godrej Global Mideast FZE 5

6 Financials Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit After Tax Extraordinary Items Net profit Equity capital Reserves Face value EPS

7 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) 30-Sep Dec Mar Jun-11E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit After Tax Extraordinary Items Net profit Equity capital Face value EPS

8 Key Ratios Particulars FY10 FY11E FY12E FY13E No. of Shares(In Million) EBITDA Margin (%) 22.24% 19.48% 19.39% 19.32% PBT Margin (%) 20.55% 17.82% 17.86% 17.81% PAT Margin (%) 16.62% 14.05% 14.11% 14.14% P/E Ratio (x) ROE (%) 35.57% 28.92% 26.95% 24.48% ROCE (%) 49.45% 42.59% 39.23% 35.38% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV

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11 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY12E and x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 39% and 32% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at x for FY12E and x for FY13E. Price to Book Value of the stock is expected to be at 5.11 x and 3.86 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, household accessories and extends to certain electronic goods. These items are meant for daily of frequent consumption and have a high return. A major portion of the monthly budget of each household is reserved for FMCG products. The volume of money circulated in the economy against FMCG products is very high, as the number of products the consumer use is very high. Competition in the FMCG sector is very high resulting in high pressure on margins FMCG companies maintain intense distribution network. Companies spend a large portion of their budget on maintaining distribution networks. New entrants who wish to bring their products in the national level need to invest huge sums of money on 11

12 promoting brands. Manufacturing can be outsourced. A recent phenomenon in the sector was entry of multinationals and cheaper imports. Also the market is more pressurized with presence of local players in rural areas and state brands Scope of the Sector The Indian FMCG sector with a market size of Rs.85,000 crore is the fourth largest sector in the economy. A well-established distribution network, intense competition between the organized and unorganized segments characterizes the sector. The Rs.85,000 crore FMCG market in India is growing at a fast pace despite of the economic downtrend. The increasing disposable income and improved standard of living in most tier II and tire III cities are spearheading the FMCG growth across the nation. The changing profile and mind set of the consumers has shifted the thought to Value for Money from Money for Value. According to a FICCI-Technopak report, India's FMCG sector is poised to reach US$ 43 billion by 2013 and US$ 74 billion by The report states that implementation of the proposed goods and services tax (GST) and the opening of foreign direct investment (FDI) are expected to fuel growth further and raise the industry's size to US$ 47 billion by 2013 and US$ 95 billion by According to a study by research firm The Nielson Company, the fast moving consumer goods market (FMCG) in rural India is tipped to touch US$100 billion by 2025 on the back of "unrelenting" demand driven by rising income levels. According to the study, rural India accounts for more than half of sales in some of the largest FMCG categories. At present, rural consumers spend about US$ 9 billion per annum on FMCG items and product categories such as instant noodles, deodorant and fabric, with the pace of consumption growing much faster than urban areas, as per the findings. The industry will witness a spate of acquisitions & mergers in the There will be a renewed focus on rural consumers too, by an analyst based in Mumbai. 12

13 The fast moving consumer goods (FMCG) sector is expected to grow 13 per cent during FY on the back of strong economic growth, a good monsoon and subsequent rise in rural income, according to an industry body. Over the years companies like HUL, ITC and Dabur have improved performance with innovation and strong distribution channels. Their key categories have strengthened their presence and outperformed peers in the FMCG sector. On the contrary, Colgate Palmolive and Britannia Industries are strong in single product category i.e. tooth pastes and Biscuits. In addition companies have been successful in reviving their presence in the semi-urban and rural markets. Major investments Some of the major investments in the industry are: Chennai-based FMCG company CavinKare is planning to invest around US$ million over the next two years in various expansion plans, including a greenfield facility for namkeen at Thane, cool drinks in the North and others. Nestle, the fast moving consumer goods major, plans to invest US$ million to set up its first research and development (R&D) centre in India at Manesar in adjoining Gurgaon district. The facility will be made operational by July Packaged consumer goods company GlaxoSmithKline Consumer Healthcare (GSKCH) plans to invest over US$ million on repositioning milk food drink Horlicks as the company s umbrella brand. FieldFresh Foods, joint venture of the Bharti Enterprises and Del Monte Pacific Ltd, has inaugurated their Research and Development and manufacturing facility in Hosur, Tamil Nadu at an investment of US$ million. Agri solutions provider Buhler India plans to invest US$ million in an integrated manufacturing unit and other expansion projects in the next four years, in line with its plans to achieve US$ million turnover by Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in India in the next two years. 13

14 Atlanta-based Coca Cola Company plans to invest up to US$ million to set up a new bottling plant in Karnataka, India Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 14

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