Godrej Consumer Products Fundamental Analysis

August 21, 2017 2 Ankit Shrivastav

Godrej Consumer Products is one of the leading manufacturing companies in India in FMCG segment, with a market cap of Rs. 62,500 crores. Company manufactures products in 3 categories, Home Care, Personal care, and Hair Care. Company also has very strong presence in countries outside India, such as Indonesia, South Africa, Latin America.

Brands and products held by the company:

Some of the most established brands in various categories are:

Soap: Cinthol, Godrej No.1, protekt (hand wash)

Hair Care: Godrej Expert (Hair color), Godrej Renew (premium hair color), Bblunt (professional hair care products) Godrej Nupur (Herbal hair mehndi)
Home care: HIT (insect and mosquito repellent) Good Knight (Multi product mosquito and insect repellent brand) Godrej are (room, bathroom fresheners) Godrej Ezee (special detergent for woolen and delicate clothes)

How did the company achieve success?

The secret of company’s massive success lies in its choice of successfully disruptive products, based on providing great utility at low cost. For example, few years ago, company launched a hair colour with cream base in small sachets, making hair coloring affordable and hassle free. Because of its ease of application and affordable price (one sachet of hair color costs Rs. 30) it quickly gained market share, which compelled rivals to respond quickly. Today Godrej hair color is the highest selling hair colour in the country.

Similarly, company also launched Good Knight Fast Cards, a simple yet effective mosquito repellent for places with no electricity. It’s a simple sheet of paper which burns for 3 minutes, leaves no smoke, but remains effective for hours. The highlight of the product is the price, while the cheapest mosquito coil costs about Rs. 2.6 per coil, Good Knight Fast Cards costs just Re. 1 per sheet of paper. In a country like India, where 56% of households do not use mosquito repellents, it provided a very easy and affordable solution. The product was an instant hit especially in smaller cities and rural parts of India, Where there is no electricity and expensive products are unaffordable.

Revenue By Geography:

Company has a strong global presence, especially in emerging markets such as Indonesia, Africa, Latin America. About 53% of company’s revenue comes from its domestic business, while 47% comes from International Business (previous year it was 34%).

Some of the major international contributors to Company’s revenue are Indonesia (37%) Africa (30%) Latin America (16%) and UK (13%), and other countries (4%).

Revenue by Product Segments:

If we look at product segment wise contribution to company’s revenue, company has three major contributors to its top line, Hair care which contributes 31% to the topline of the company, Household insecticides, which contributes 30%, and personal wash with 17% contribution to the company’s top line. Other than these products, Air fresheners contribute 7% while others contribute 15%.

Having understood the business, its revenues, let’s take a look at the past performance of the company:

Basic EPS:

Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.

In the past 5 years, company’s Basic EPS has seen a good growth from Rs. 15.01 per share in 2013 to Rs. 24.9 in 2017, a growth of 10.65% CAGR.

Cash EPS:

Cash EPS is a measure that looks at how much cash flow the company has generated during the financial year. Cash EPS shows how much cash the business is generating in a year. Cash EPS not only includes Cash received by the business for the products sold or services provided, it also includes any upfront payments, such as cash advance received by the business.

Company has seen a good growth in its cash EPS too. In 2013 company’s Cash EPS was 15.96 while in 2017 it was 26.56, a CAGR growth of 10.72%

Revenue from Operations/Share:

Revenue from operations is a measure of how much revenue a company is generating from its core business. Revenue from operations does not include income from non operating activities such as sales of assets, sale of subsidiaries, income from investments made etc. Revenue from operations/share measures how much revenue a company is generating from its core business on per share basis.

Company has had a decent revenue growth from its operations. In 2013,company’s Revenue from Operations was Rs. 105.23 per share while in 2017 it was Rs. 139.4 per share. A growth of 5.79% CAGR. Godrej Consumer Products recently had seen a fall in revenue due to high cost of raw materials in the domestic market and sluggish economic growth in Indonesia, which is the second largest market for the company after India.

Net Profit Margin:

Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.

ROCE:

ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.

Godrej Consumer’s ROCE has been stable for the past 5 years at a healthy level of 15% to 18%

Debt/Equity:

Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).

Company has been a zero debt company for the past 5 years, a sign of sound financial strength of the company.

Dividend percentage to Net profit:

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders.

Godrej Consumer’s Dividend Payout Ratio (%NP) has been consistently falling for the past 5 years. While in 2013, Godrej Consumers paid 33.3% of its net profit as dividends while in 2017, it fell down to 23.08%. The reason behind the fall is Godrej Consumer’s continuous acquisition of other companies in the emerging market, which has also helped Godrej in its inorganic growth.

Dividend/Share:

Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.

Though Godrej consumer’s Dividend to Net profit percentage is falling, what is positive is that company’s dividend per share is seeing a consistent growth. In 2013, company paid  Rs. 5 per share as dividend, while in 2017, dividend per share paid by the company was Rs. 15 per share. This shows that company’s earnings are rising rapidly because even if company is distributing smaller portion of its Net Profit, on a per share basis, the dividend is rising.

Company’s recent Acquisitions:

Company has been aggressively acquiring companies in the past 6 years with almost 10 acquisitions in its portfolio. In 2015-16. Company acquired two companies Caon Chemicals in Kenya and Strength of Nature in US spending Rs. 1,200 crores. Company also acquired a Chilean company Cosmetica Nacional, which is market leader in Hair care segment in Chile.  

Future Expansion Plans:

Company plans to grow at 26% CAGR till 2020, using aggressive organic and inorganic growth.

Company has introduced disruptive products in India and other emerging markets such as Indonesia and South America and Africa, where majority of population is young middle income households.

Among the emerging international markets, Indonesia is specifically on company’s focus as the country’s economy is growing. Godrej Consumer plans to triple its revenue in the next 5 years. Currently Indonesia contributes Rs. 1,500 crores to the topline of the company, company targets Revenue of Rs. 5,000 crores from Indonesia business by 2020.

Company is adopting bottom to top of the pyramid approach in which it is going to introduce economical and disruptive products for the bottom of the pyramid and will be focussing on E-Commerce route to sell premium products, targeting urban consumers. This will give Godrej a larger canvas to play with.  

What makes Godrej Consumers a Great Investment ?

Second largest FMCG company in India

Wide variety of brands such as Cinthol, Good knight, Hit etc. Good Knight is the market leader in insect and mosquito repellent segment.

Strong growth and earning track record

Company has a strong presence in other international emerging markets such as Indonesia, Africa and Latin America

Company has many disruptive and innovative products helping penetrate rural market

Company has been growing both organically by introducing new products and inorganically by acquiring companies in international market.

Godrej Consumer is tapping E-Commerce route to sell its products (Nature’s basket is one of the company’s gourmet foods business which is a pure online business)

Total Comments ( 2 )

  1. decnt says:

    Goodnight is completely out of picture and other products like soap godrej no. 1 etc. has lot of competition.Company has given bonus this year only and despite it p/e is 40,way too high.

    • Ankit Shrivastav says:

      I didnt understand what do you mean by the statement “Goodnight is completely out of picture” does that mean I have not mentioned about it? please clarify.

      As far as having high P/E is concerned, most of the FMCG companies have high P/E because of high return on capital the enjoy. Look at HUL trading at standalone P/E of 58, Emami trading at P/E of 90, Dabur Trading at P/E of 48. However, an investor must make sure that he is buying stock whenveer it is trading at lower P/E compared to peers, or when the price has corrected significantly.