The company continues to do well both in soaps and hair colour categories.
The Godrej Consumer Products (GCPL) stock rose 12 per cent on Tuesday in a market that was otherwise subdued. It's true the company has been doing well--it gained market share in both the soaps and hair colour categories in the March 2009 quarter, which pushed up revenues by 26 per cent. Even after that soaps continue to do well as does the hair colour segment where the company is understood to have added market share in April and May.
The Street probably also has high expectations of the new managing director. The company, it is learnt, plans to focus its investments on its three core brands--Godrej No 1, Cinthol and Godrej Expert--at the same time, by strengthening the distribution network, especially in the hinterland. Analysts believe GCPL is well poised to gain market share in the hair colour space--Morgan Stanley estimates the business could grow at a compounded annual growth rate (CAGR) of 13 per cent over the next three years. It also believes GCPL could be among the fastest growing FMCG companies in the current year. Indeed, all FMCG players are expected to do well this year with the rise in revenues likely to average 13-14 per cent--the five-year historical average has been around 17 per cent.
Indeed, as Enam Securities points out the FMCG market has grown at a compounded rate of 19 per cent in the last three years with hair oils and skin creams among the fastest-growing categories. The top line for most firms should be driven by volumes which were impressive in the March 2009 quarter, with a couple of exceptions.
As for value growth, companies have reduced prices in select categories on the back of a fall in commodity prices. With operating margins expected to remain stable or even expand slightly, the earnings momentum is fairly strong for most companies--on an average they are expected to turn in earnings growth in high double digits.
However, a weak monsoon could play spoilsport and, apart from weakening rural demand, could also push up input costs. At the current price of Rs 182, the GCPL stock trades at a price-to earnings (P/E) multiple of close to 20 times estimated 2009-10 earnings. For perspective, Hindustan Unilever trades at just over 23 times, Dabur at just under 22 times and Marico at 19 times.
