ValuePickr Forum

Godrej Consumer Products Ltd (GCPL)

Godrej Consumer.xlsm (249.8 KB)

The 120 Yr old company is going strength to strength in both India and outside. Though the company is a familiar household name in India, below I have put together a quick investment thesis-

Godrej Consumer Products is a fast moving consumer goods company, manufacturing and marketing Household and Personal Care products. The company has been nominated for CNBC IBLA outstanding company of the year award 2019.

Today, the Group enjoys the patronage of 1.15 billion consumers globally, across different businesses. In line with their 3 by 3 approach to international expansion at Godrej Consumer Products, they are building a presence in 3 emerging markets (Asia, Africa, Latin America) across 3 categories (home care, personal care, hair care). They rank among the largest household insecticide and hair care players in emerging markets. In household insecticides, they are the leader in India and Indonesia and are expanding their footprint in Africa. They are the leader in serving the hair care needs of women of African descent, the number one player in hair colour in India and Sub-Saharan Africa, and among the leading players in Latin America. They rank number two in soaps in India, are the number one player in air fresheners in India and Indonesia, and a leader in wet tissues in Indonesia.

Below are snippets from company’s financials based on screener data -

Total Income - The company has managed to grow revenue consistently over years. Though the growth has slowed in recent years.
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Net Profit Margin - The NP margin has increased in last couple of years driven by cost savings initiatives initiated across markets. The NP margin is >10% and mostly stable which is a healthy indicator of pricing power the company enjoys. For e.g. the company is facing rising cost challenges in Argentina which it plans to pass over to customers.

Earnings per share - The company has been steadily increasing EPS over the years. The promoter holding is stable at ~63% over the years (no equity dilution)

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Reasonable debt - The company carries reasonable debt on its balance sheet (<2 times of annual net profit). Too much of debt kills the profit and becomes a burden during stressed times.
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Cash Flow - The company’s cash flow looks healthy. It has been generating free cash flow consistently. Generating free cash flow is a healthy sign as that shows that the company does not need a continuous investment in research and capacity build which exceeds the cash flow/profit it generates.

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Return on Equity - The company has been improving its RoE in the last couple of years driven by increase in profit margin. RoE >20% is a good indicator of efficient capital allocation.

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Inventory management - The company has been managing inventory quite well. The growth rate of sales exceeds that of inventory. Inventory pile up is a worrying sign as that indicates that the company has been struggling to push its products to the stores and eventually to customer’s homes.

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Asset Distribution - The company’s asset side looks stable and healthy. Both receivables and inventory are stable over time.

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Liability distribution - Though a quarter of the liability is debt, the proportion is stable over time. One of the reasons the company has to borrow from the market is to be able to fund its acquisitions both within India and outside.

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The financials of the company look very pristine and healthy. Coming to valuation, the company currently trades at ~27X consolidated earnings. The PE ratio in the last 5 Yrs are ~31, ~30, ~38, ~28 and ~24.

The company’s Q219 concall and investor presentation inspires confidence of exciting times ahead. Given the successful history of the company, the company looks promising to deliver on the growth plans.

GCPLQ2FY19ConferenceCallTranscript.pdf (217.1 KB)

On the risk side, the following could hurt the company -

1.The company is facing challenges in generating returns in Latin America and Africa (company’s ~50 revenue is generated outside India). So if these markets don’t turnaround, the overall returns of the company will be reduced.

2.Some of the acquisitions in the past couldn’t perform well. The company sold its UK subsidiary in 2018. Though the company has hinted that it will be going slow on acquisitions, any non-strategic acquisition by the company will hurt.

3.New product launches could fail to impress the customers.

4.Govt initiatives like Swatch Bharat might hurt the sales the company generates from HIT & Good Knight.

I invite thoughts/comments on GCPL by all boarders!! @hitesh2710 @Yogesh_s @deevee @basumallick @richdreamz

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U have stated “Coming to valuation , the company currently trades at ~27X consolidated earnings”

In the above I think it is trading at current trailing 40x consolidated earnings

TTM consolidated net profit ~2030 Cr
Equity shares ~68.14 Cr
Current share price ~790

The above three numbers give a PE of ~27
The screener screen reports PE~50 which is on standalone net profit

Equity capital is now 102 cr after 2:1 bonus issue in sep
And PE based on that is 40 it seems


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This is outstanding work! My notes on this work:

  1. Have you also carried out future growth assessment
  • In FMCG sectors, valuation is based future projection and the valuation is attractive, if the growth is based on what the company is currently doing vs. from yet to be launched initiatives.
    Relative market share gain could be another important parameter in valuation: would be interesting to know if/how you would incorporate this?
  1. As someone pointed out, # of outstanding shares have changed and thus PE will change too…
  2. Real value of a company with such a legacy is rarely reflected in the BV. Guess it is fairly cumbersome to estimate the value of assets of the company to arrive at the market value of the company to compare against its market cap

Keep up the good work.

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The below distribution of the sales the company generates has an important message to convey -

The company has an innovation/growth mindset. It has successfully launched innovative products at affordable price over years. The company plans for many more launches in 2019. So yes, the bet on GCPL’s ability to grow will depend on the success of these launches.

The below distribution of the geography where the company sells its products, again has an important message.

The company has diversified geographically over time. Latin America and Africa haven’t yet performed to company’s expectations. Will it always stay like this? The company does not think that way and is hopeful to generate double digit return in couple of years. So the bet on GCPL is a bet on these markets shaping up as expected.

Not so Good quarter for the company…

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https://www.moneycontrol.com/news/business/moneycontrol-research/godrej-consumer-products-gcpl-international-business-remains-a-drag-stay-on-the-sidelines-3453271.html

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by @dineshssairam

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Isn’t this a clear case of equity dilution:

Does it mean that the current PE is 33, if equity base was not 68, it would be 66 PE, if equity base was not 102, it would be 99 PE

Share capital 34, actual PE : 99
Share capital 68, actual PE : 66 (dilution)
Share capital 102, actual PE : 33 (dilution) ?

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This is not dilution… check corporate actions…

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Godrej Consumer had given two bonuses, a 1:1 and a 1:2 and hence it seems like a dilution.

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Is there any guidance by management as to by when do they plan to get debt free ?

some RED FLAG notes
Net Profit Margin (last three years) 14.07% 16.59% 22.70%
Operating Profit Margin (last three years) 22.27% 21.46% 20.64%

last five years
ShareHolders Funds 4310.69 4266.96 5301.95 6258.31 7266.92
Total Debt 2717.15 2891.12 4000.93 3507.57 3382.05
Free Cash Flow 448.82 547.23 -486.60 1349.11 1235.43

working capital requirments is increased from last fives years
details you can check in attched xls
Godrej Consumer RAJ.xlsx (111.1 KB)

The number of permanent employees ( As per AR ) 2016-17 2017-18 2018-19 2457 2578 2781
percentage increase in the median remuneration of employees ( As per AR ) 9.59% 6.1% 6.23%
Median remuneration of all the employees ( As per AR ) 4.23 lakh 4.49 lakh. 4.21 LAkh

employee cost calculated as per AR taking base 4.23 lakh Salary in 2017-18 should be 4.63 Lakh @9.59% where as company reported 4.49
taking base 4.49 lakh Salary in 2018-19 should be 4.79 Lakh @6.21% where as company reported 4.21
The error may be due to the NEW RECUITMENTS but the REPROTING IS NOT CLEAR

as per 2016-17
Achievement as of January 2017 ( IN DIRECT LEARNING )
51% reduction in greenhouse gas emissions indirect reading ( the process is stiil not efficient )
31% reduction in specific water consumption ( Company has not done water conservation in last decade or last 17 years )
60% reduction in specific waste to landfill ( they are generating hell of waste )
37% reduction in specific energy consumption ( Company was energy waster )
50% of total energy consumption from renewable resources ( what is the reasons they havn’y done in the earlier years )

in Achievement as on March 2018
39.6% reduction in specific greenhouse gas emissions
19.6% reduction in specific water consumption
99% reduction in specific waste to landfill
25% reduction in specific energy consumption
30% of total energy consumption from renewable resources ( WHAT IS THIS HAVE YOU SWITCHED OFF YOUR SOLAR PANNELS )

now in 2018-19
30% reduction in specific energy consumption ( BHAI BIJLI CHAHEYE YA NAHI … )
26.3 % reduction in specific water consumption ( DEKHO BHAI EMPLOYESS KE LIYE WATER COOLER HAI KE NAHI )
99.6% reduction in specific waste to landfill ( 99% reduction done in previous year YE KAYA HUA PHIR GANDA PHELA RAHE HO …)
41.6% reduction in specific greenhouse gas emissions ( DESERVE NOBEL PRIZE RECOMENDATION …)
30% of total energy consumption from renewable resources ( BHAi PICHALEY SAAAL BHI YEHI THA… is mai KAYA NAYA)

NOW DIVIDEND
ANDHA BANDE REWARIYAAN MUDH MUDH APNE KO DE
2016-17 the Board has declared an Interim Dividend of ` 7/- per equity share. The record date for the same is May 16, 2018. This dividend will be accounted in fiscal year 2018-19. WHY ->>>> During the year, pursuant to the Board approval received on May 09, 2017, the Company had issued and allotted bonus shares in the ratio of 1:1;

total share by promotors 215,496,082 63.27% it means they are siuuing themsleves the same noumber THEY ARE MAJOR GAINER BEING INSIDER

Expenditure on R&D ( VERY VERY LOW …)
2015-16 2016-17 2017-18 2018-19
(a) Capital 1.83 1.74 0.25 0.12
(b) Recurring 15.51 14.46 14.91 16.38
© Total 17.34 16.20 15.16 16.50
(d) Total R&D expenditure as a percentage of total sales turnover 0.36% 0.32% 0.29% 0.30%

NOW in AR 2016-17 Page 180

Check post penaities levied if the owner of the vehicle does not have proper bill bilty or invoice the effect can be 200% of the amount ( it leads to suspicious practices followed in transfer of material .

Non submission of C or F forms C forms are used to avail connectional rate of tax pre GST it was 2% in case of interstate sale in absence of that the taxable authority can charge full rate of tax from the offender ( it leads to failure of operation of of sales staff in getting the proper documentation from the customer So BAD on collection END )
detention of vehicles ( only detained if the Quantity is mismatched against the Bill or invoice or the goods are transferring with proof of proper documentation i.e Bill Bility or invoice … THIS can be be fault of the Company or the transporter but the Reputation CRACKS

source ;




Regards

Disc ; not invested This is not any stock recommendation to buy or sell or hold i am not any SEBI approved Analyst

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Hi,

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Hi,

If we compare the debt levels of other companies like Dabur,HUL,P&G,Godrej Consumer seems to have high debt levels.the D/E stands around .47(approx .5).The debt levels seems quite high comparing to its peers.Debt reduction can definitely reduce the interest outgo and increase the profit(bottom line). Company will have more cash to reinvest in expanding business.

Any views on why the debt levels are so high and share price also seems to be lagging comparing to its peers in terms of valuation.

Thanks,
Deb

True, Debt is one concern specially in the faling sales scenario…One more reason for the recent fall could be selling by FIIs, as per Dec qtr, FIIs own 27.74 highest amongst its peers - Dabur, Marico, etc…

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