Godrej Consumer Products Ltd’s (GCPL’s) strategy of trying to gain market share without worrying too much about profitability is paying off. The company’s key brand, Godrej no 1, continues to gain share at the mass end and, in the June 2009 quarter, sales of soaps grew 27 per cent, outpacing the competition.
The good news is that volumes were up an estimated 15 per cent, supported by some competitive pricing. Having gained 40 basis points of market share during the quarter, GCPL’s share in the soaps market is now 10 per cent. It’s not just the soaps business that’s doing well. Volumes were strong for the hair colour space too.
Again, it’s the mass brands that appear to have fared particularly well and after having lost share last year, GCPL gained share in the June quarter and now commands close to 35 per cent. However, the competition across segments is keen and GCPL could find it difficult to hold on to its market share. Nevertheless, the company posted some excellent numbers for the June 2009 quarter with revenues up 21 per cent and operating margins expanding nearly 550 basis points.
The company has been beefing up its distribution, especially in rural areas; currently, rural sales account for about 38 per cent of sales, which means there is room to grow in the hinterland. However, the competition is likely to get more intense as Hindustan Unilever tries to win back its share and ITC gets more aggressive with its Superia brand.
As such, top line gains for GCPL could taper off with gains from price hikes coming down, though volumes should be strong given that price points are attractive — the low unit packs of Rs 5 now contribute an estimated 20 per cent to the total revenues. In the current year, GCPL’s revenues should grow 18-19 per cent to Rs 1,660 crore while earnings could grow about 50 per cent on a very low base due to lower prices of key inputs. At the current price of Rs 211, the stock trades at 21 times estimated 2009-10 earnings and is not cheap.