A better reach in rural markets has helped both the soaps and hair colours businesses.
Godrej Consumer Products’ focus on the mass segment is paying off in both the hair colours and soaps spaces as reflected in the September 2009 quarter numbers which surpassed the street’s estimates. Revenues (for continuing operations) were up a strong 25 per cent at Rs 440 crore, driven by some brisk business both in the home market and overseas.
With GCPL having extended its reach in the hinterland, the soaps business did extremely well to grow at 28 per cent, driven essentially by volumes that were up an estimated 18 per cent. In fact, the company has gained 130 basis points of market share over the past few months and now commands a share of close to 11 per cent.
As for the hair colours business, while the top line growth at 47 per cent has been impressive, it comes on a low base — the business had declined by 6 per in the September 2008 quarter. Nevertheless, a better distribution strategy as a result of which the company is now present in 5,500 towns and 15,000 villages, has helped GCPL pick up more share in that space. It now has a share of almost 35 per cent with the Nupur brand , which now accounts for about 12 per cent of sales, having become popular in rural markets.
GCPL, say analysts, has also tied up with many more beauty parlours. GCPL has all along promoted its brands and spent 250 basis points more on advertising and promotions during the September quarter.
However, the favourable product mix, with hair colours growing faster than the soaps business, helped improve profitability and operating margins were also strong because of the lower cost of inputs such as oil. GCPL’s acquisition of a 49 per cent stake in Godrej Sara Lee, in July this year, say analysts is a good move because it will strengthen the product portfolio and besides gives GCPL scale. Sara Lee, of course, sold of its personal care business to Unilever in a global deal.
GCPL is expected to grow revenues by about 18 per cent in 2010-11 while profits could grow by a higher 20 per cent. At the current price of Rs 284, the GCPL stock trades at 21 times estimated 2010-11 earnings and is attractively valued.
