Godrej Consumer Products (GCPL) held conference call to discuss the results for the quarter ended December 2008. Following are the key highlights of the meet:
Highlights of the meet
The company’s net sales for the quarter ended December 2008 on consolidated basis has increased by 25% to Rs 342.14 crore. The consolidated sales also include sales of Godrej Netherlands which stood at GBP 4.4 million (up by 19%), Rapidol of ZAR 27.8 million up by 10%) and Godrej Global Mideast which stood at AED 2.5 million (up by 32%).
During the quarter, domestic sales from soap increased by 22% (vs industry growth as per AC Nielsen of 21%) to Rs 163.7 crore, hair colorants increased by 14% (vs industry growth as per AC Nielsen of 25%) to Rs 57.0 crore, liquid detergents increased by 13% to Rs 31.4 crore and toiletries increased by 9% to Rs 12.7 crore.
The operating profit margin (OPM) of the company decreased by 672 basis points to 14.1%. Margin impacted by high cost vegetable oil inventories. Benefits of decline in costs expected to be seen in Q4FY09. Due to decline in margin net profit of the company decreased by 7% to Rs 40.04 crore.
The sales of the company for the quarter ended December 2008 on standalone basis grew by 19% to Rs 272.16 crore. OPM of the company decreased by 800 basis points to 14.2%. The company’s net profit decreased by 6% to Rs 38.92 crore on slip in margin.
Other expenditure to sales ratio has come down because of lower fuel cost and cut in excise duty on inventory.
Soap industry has a volume growth of 6.6% for the December quarter. The management expects a good volume growth for the coming quarter for the industry.
For the December quarter, soap business has shown a volume growth of 19% and value growth of 23% while hair color business value growth was 14%.
Soap business has seen improved volume because of consumer’s purchase for value for money products, launches of new products in soap business and more sales of Godrej No.1 brand.
For the nine months period, soap has shown a volume growth of 10% and value growth of 21% while hair color business value growth was 9% to 10%.
Since the company has not increased any price in last 9 months, it has helped its Godrej No1 brand to grow in volume, which has resulted in high volume growth in Q3. Moreover, a No.1 brand is growing faster compared to other business of the company. Since No.1 brand is low margin product, it has caused the margin of the company to come down.
The company continues to be the second largest toilet soaps player with a market share of 9.7% for Q3. Profits impacted by high cost vegetable oil inventories. Benefits of decline in costs expected to be seen in Q4. The company has launched a new variant of Godrej No. 1, ‘Strawberry and Walnut’. This is the first time a combination of strawberry, walnut and milk cream in a soap has been launched in India which is available in 4 sizes – 125 g (pack of 4) pack at Rs 50, 70 g (pack of 4) pack at Rs 29, 90 g (pack of 3) pack at Rs 29 and 90 g (pack of 4) pack at Rs 39. The products are doing well.
In hair colorants, the overall market share of the Company stood at 32.4% for the quarter. Q3 growth is higher compared to 9 months period. The company’s nearest competitor has market share of 20% and 14%. Hair color business is not a commodity sensitive business. The company’s black hair dye business is performing poorly compared to overall hair color business.
In liquid detergents, the overall market share of the Company stood at 81.3% for the quarter.
Godrej Netherlands B.V. (Consolidated) comprises performance of Godrej Netherlands BV, Godrej Consumer Products (UK) Limited, Keyline Brands Limited, & Inecto Manufacturing Limited). The revenue for the quarter was GBP 4.4 million, up by 19% while PAT for the quarter stood at GBP 0.2 million.
Rapidol sales for the quarter amounted to ZAR 27.8 million, increase of 10%, while PAT for the quarter was ZAR 3.5 million.
Godrej Global Mideast FZE (GGME) distributes GCPL soaps, hair colours and toiletries in the GCC and other adjacent countries. It has the sales of AED 2.5 million, increase of 32%.
Kinky Opened 5 “Kinky” Owned stores across South Africa, taking the total number of stores to 22. Kinky is doing well compared to Keyline and Rapidol and margin will improve going forward. Due to higher taxes of 28% paid in South Africa, Kinky reported a loss of Rs 0.32 crore for the quarter.
The palm oil prices have come down by more than 50%, which will help the company to gain on margin in coming quarters. Most of the high cost inputs are consumed for the December quarter, which has resulted in fall in the margin. However, as input cost has come down, the company expects, margin in soap business to return back to their normal level in March quarter and will be much higher for the FY10, which will be highest compared to last 4 to 5 years. The company is not going for any price cuts across its brands since, it has not raised their price as high as their competitors which is why, it has experienced a fall in margin for last 2 to 3 quarters. However, also management expects not much price cuts across soap industry, even if some players decide to go for a cut.
In low category soap, 50% to 60% of palm oil derivative is used while its range is between 30% to 40% in premium category.
The management will maintain its soap price, while it will increase their promotion and advertising spends in coming quarters to meet the competition.
The management expects a good double-digit volume growth for the coming quarters. However, the management doesn’t expect same volume growth in Q4 as in Q3.
The company maintains very low inventory. However, the company has gone for 3 to 4 months of forward purchases, so that supply chain doesn’t get affected.
The excise duty has gone up significantly for Q3 due to more production in full excise applicable facilities like Mallanpur.
The company will have capital expenditure less than depreciation for the next 2 to 3 years leaving the acquisition cost.
Godrej SCA Hygiene does a business of Rs 1.5 to 2 crore for a month.
The company receives 6% of its total sales from Modern Trade, which has grown by 35%.
Thanks for such wonderful report