Stock Review: GODREJ CONSUMER PRODUCTS

Inorganic growth has powered Godrej Consumer Products which reported a better-than-expected show for the March quarter. While net sales for the quarter have almost doubled from that in the fourth quarter last fiscal, net profit rose 54% y-o-y. The results are not comparable to fiscal 2010 as the company completed seven acquisitions during the fiscal 2011. The market warmed up to the company, with the stock closing 4.6% higher for the day. Despite the exceptional growth in both topline and bottomline, profit margins have been hit due to a muted performance of the domestic soaps business. An increase in raw material prices and price-cutting and discounting by a competitor led to GCPL losing its market share in the soaps business. At 12.9%, the operating profit margin dropped 460 bps against a year ago. In the domestic market, the company continues to command leadership in the home and hair care markets – each growing at over 17%. Its soap category which is growing at a slower rate of 13%.

The company's 3X3 strategy of being present in three product categories of personal care, hair care and homecare across three continents of Asia, Africa and Latin America has proved to be quite timely and beneficial. While the company's soap business in the domestic market is under stress, it is able to forge strong growth through its presence in other fast-growing categories in India as well as other emerging markets like Indonesia, Middle East and Africa. As a result, the proportion of soaps business to the total revenues has decreased substantially in the past three years to 30% from 60%. GCPL's international business now contributes one-third to its total top line and the company is now in the process of consolidating its category portfolio across all the geographies. With an annual top line of . 3,725 crore, GCPL has been one of the fastest growing FMCG companies. It expects to grow at a compounded average growth rate of 25-30% over the next five years, with 10% contributed by inorganic growth. With home insecticides and hair colour growing at a faster rate, the proportion of soaps segment may shrink going forward. Given the competition in the domestic market, ad spend is likely to remain high at 8-9% of the total sales.