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Sunday, July 29, 2001












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Godrej Consumer Products: Buy

Recommendation: Buy

Aarati Krishnan

INVESTORS with a three-five-year horizon can consider taking exposures in Godrej Consumer Products, which is vested with the consumer products business of the erstwhile Godrej Soaps.

The lack of topline growth has been the key stumbling block for most FMCGs.

But product innovations, market share gains and restructuring have ensured healthy sales growth for Godrej Consumer Products recently. This apart, unlike other FMCGs', the stock is at a modest valuation, trading at Rs 41.


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Godrej Consumer Products was spun off from Godrej Soaps in April 2001 and is vested with the latter's toilet soaps, personal care, hair dyes, and detergent businesses. The par value each share in Godrej Soaps was reduced to Rs 6, each shareholder was issued a share in Godrej Consumer Products with face value of Rs 4.

Though the consumer products division accounted for 52 per cent of Godrej Soaps' revenues in 2000-01 and has higher levels of profitability than the residual businesses, Godrej Consumer Care has been vested with a proportionately lower equity base of Rs 23.95 crore after the spin-off.

This structuring was intended to unlock better valuations for the consumer products business in the stock market. This apart, cross holdings and investments in various Godrej group companies _ major impediments to valuation _ have also been left with Godrej Industries, now managing the non-consumer care businesses of Godrej Soaps.

Having recently acquired trademarks for its key brands from group company Godrej and Boyce, Godrej Consumer Products holds brands such as Cinthol, Cinthol Fresh, FairGlow, Godrej No. 1, and Allcare toilet soaps, apart from Crowning Glory, Kesh Kala and ColourSoft hair care products. These businesses have turned in a healthy growth, defying the sluggish FMCG market trends.

For instance, the toilet soaps business followed up a value growth of 17 per cent in 2000-01 with a 23 per cent growth in the 2001-02 first quarter. The success of Godrej's new fairness soap, Fairglow and popular soap, No.1, contributed to this gain. The strategy of staying at the price point of Rs 10 for soaps also appears to have pepped up volumes.

This apart, the personal care portfolio has also turned in a healthy sales growth (44 per cent in 2000-01 and 55 per cent in Q1 2001-02), thanks to the high growth rates in hair dyes and hair colour where Godrej is the market leader.

In the quarter ended June 2001, the company has made market share gains in toilet soaps, and hair colour while losing some share in talcum powder and shaving creams. The company has stepped up outsourcing to reduce costs and has restructured debt to save on interest costs.

Financials: The divisional performance for 2000-01 shows that the consumer care business registered a sales growth of 22 per cent to Rs 468.42 crore. In the 2001-02 first quarter, the first financial period for which Godrej Consumer Products is reporting its financials as a separate entity, the company registered a net profit of Rs 9.17 crore on sales of Rs 140.38 crore. The net profit for the quarter translates into a per share earnings of Rs 1.53 (unannualised).

Related links:
Godrej Consumer Products identifies personal, hair care as thrust areas -- New launches, brand extensions planned
GPCL revamps distribution system


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