With its top line growing a strong 26 per cent in the March 2009 quarter, driven by the soaps, hair colour and international businesses, Godrej Consumer Products has posted an impressive net profit growth of 45 per cent. The strength of the numbers lies in the double- digit volume growth. What’s most encouraging is the bounce-back in the hair colour segment ---up 20 per cent.
However, it’s a pity that despite saving nearly 500 basis points on ad spends and some amount on other expenditure, the company’s operating profit margin slipped 130 basis points year-on-year to under 20 per cent. That was mainly because of high raw material prices which are beginning to ease, but the benefits of which are yet to flow through fully. Seen on a sequential basis, operating margins improved, reflecting the fall in input costs.
The company has been gaining market share in soaps and its share is now nudging 10 per cent, which should not be difficult to sustain. Godrej has also gained market share in the hair colour space during the March quarter, but needs to come up with brands at the top end where the demand appears to be growing at a faster pace. However, the downtrading being seen in consumer staples should help GCPL in the near future as should the fairly robust demand in rural markets since several of its brands are positioned at the mass market.
In the current year, the company’s revenues are expected to grow by about 10-12 per cent over the Rs 1,397 crore posted in 2008-09. Net profits are expected to be substantially higher than the Rs 173 crore reported last year, growing at over 30 per cent mainly because of lower input costs. The stock has run up sharply in the past few sessions and at the current price of Rs 158, trades at 17.5 times estimated 2008-09 earnings.