The following is a snap short of Godrej Consumer Products Ltd.Please include this too in the discussion.
|Godrej Consumer Products Ltd.
CONSUMER PRODUCTS LTD.
|5 YR CAGR
|3 YR CAGR
|1 YR GROWTH
CONSUMER PRODUCTS LTD.
The company's has beenaggressively expanding inorganically.Over the past five years,GCPL has undertaken several acquisitions overseas â Keyline Brands in the UK, Rapidol and Kinky group in South Africa and Godrej Global Mideast FZE. It owns internationalbrands and trademarks in Europe, Australia, Canada, Africa and the Middle East and recently acquired the âTuraâ brand in Africa.During FY12, GCPL has entered into an agreement to acquire 60% stake in Cosmetica Nacional, Chile.Cosmetica Nacional enjoys ~30% market share in volume terms and is a leader in Chile, Panama andCosta Rica in the hair colourants market. Further, GCPL acquired 51% stake in Darling Group Holdings,which has operations in South Africa, Nigeria and Mozambique.Its salesand PAThave grown ~7 times and ~6 times respectively of FY06 numbers!Over the same period assets have grown to 30 timestheirvalue of FY06!
Solvency: Considering its size and pace of growth,the company has done a fair job in keeping debt within comfortable levels and ensuring that theInterest cost is fairly covered by earnings under normal circumstances.Though inadversescenarios thecompanymay face trouble retiring debt.
Liquidity:Seen in isolation the liquidity position seems to have worsened,but taking into account the Acquisitions the picture looks decent.Going forward as the company yieldsbenefitsof synergy there is a highprobability that the picture will improve.
Efficiency: The debtor days has more than doubled over the period.This probably is a red flag.
Margins,Turnover and Return:The gross margin has improved over the years.But The EBIDTA and PAT Margins have declined. This is probably due to the fact that the company is yet to yield economies of scale & scope in its operating costs and almostconsistentlyIncreasing Interest cost and effective tax rate(Reasons for Decline in PAT margin).The turnover ratios and return ratios have declined over the years.Hopefully they will Improve with time as the companyintegrates its business.
Types of businesses:The company owns brands like Good night,Hit,jet etc in India that are synonymous to the productcategory.(though Motin and a few others have entered the segment as competitors,the company's deep distribution network ensures itsdominant position).In International markets, in Indonesia,it is the market leader in airfresheners and wet tissue products,in South Africa,it is leader in ethnic hair colour products.Thecompany holds the second position in the hair colour market in Argentina, the home insecticidesmarket in Indonesia, the medicated soaps segment in Nigeria and the hair extension products segment.Thedominant or neardominant position in these segments of various market, thecharacteristicof the product that it forms an insignificant portion of consumer budget and the fact that most of the products are either essential(mosquito repellent,home insecticides etc) or appearance or beauty related(eg: Hair colour etc) gives it significant pricing power.The fact that theyget used up within a month or two ensures the recurring customers.Hence quality of earning is good as it is reliable and can be adjusted with increase in price of raw materials.The company derives 60% revenue from such products.
GCPL is the second largest player in the domestic toilet soap market. In this segment it sells commodity like product(low margin),but its deep distribution network ensures high turnover.The high turnover more than compensates the return for low margin.The company derives ~20% revenue from this segment.
Distribution Network:It has a distribution network of 4.8-4.9 million retail outlets,which is lower than that of ITC,HUL and Dabur only.
The penetration ofmosquito repellent and home insecticide is pretty low in India,specially in the rural areas.The company is well placed to capitalize on this opportunity.Whereas the penetration of toilet soap is very high(one of the highest in India).