MARKET DEVELOPMENT
Godrej Consumer’s Profit Growth Could Trump Sales Growth Niggles
Godrej Consumer’s Profit Growth Could Trump Sales Growth Niggles
26/10/2015 (Livemint) - Godrej Consumer Products Ltd’s results give a mixed picture on the sales growth front, but all is well on the profitability front. Domestic sales growth was pulled down by its soaps business, whereas unfavourable currency movements hurt its international business sales growth when converted to rupees. But falling input prices were the highlight of its performance, a standard feature of most consumer company performances.
The company’s domestic volume growth was 9%, better than Hindustan Unilever Ltd’s (HUL) 7% growth, but lower than its June quarter level of 13%. Value sales growth was just a bit higher at 10%. Most of this stress was due to its soaps business, where sales growth dipped to 3% with volume growth in mid-single digits. HUL’s decision to focus on market share and growth, even if lower prices affect sales growth, is telling on its competition, too. The company said it continues to spend on sales promotions to retain its own share, no doubt aided by the savings from lower palm oil prices.
Household insecticides and hair colours, which contributed to 60% of sales, did much better with 13% and 17% growth, respectively. Despite a 27% increase in domestic advertising and promotion spends, its domestic business operating profit rose by 15%. That’s the benefit of having lower material costs on your side.
In its international business, the company said organic constant currency sales rose by 15%. That’s excluding the impact of acquisitions and foreign currency movements. This is a bit better than the June quarter’s 13%. Africa and Latin America led sales growth while Indonesia and Latin America contributed to better profitability, according to a company presentation.
Overall, Godrej Consumer’s revenue rose by 9% to Rs.2,245 crore over a year ago, while its operating profit rose by 19.2%. The growth in profit was driven by a 4.7% decline in material costs, which offset increases in all expenditure items—advertising, employee costs and others. Its net profit rose by 22%, partly helped by a lower tax incidence.
Investors should be pleased with the growth in its net profit, which is much better than HUL’s 3.7% growth (excluding exceptional items). The stock is up by 15% in the past six months. Its results show that Godrej’s domestic business is doing well, barring soaps, and some of the problems in its international business are external. That puts it in good standing among its peers and among investors.
The slowdown in rural markets is a risk for the company, more for its soaps business than for the others. It remains to be seen if recovering sales in urban markets can pick up that slack soon enough.
The company’s domestic volume growth was 9%, better than Hindustan Unilever Ltd’s (HUL) 7% growth, but lower than its June quarter level of 13%. Value sales growth was just a bit higher at 10%. Most of this stress was due to its soaps business, where sales growth dipped to 3% with volume growth in mid-single digits. HUL’s decision to focus on market share and growth, even if lower prices affect sales growth, is telling on its competition, too. The company said it continues to spend on sales promotions to retain its own share, no doubt aided by the savings from lower palm oil prices.
Household insecticides and hair colours, which contributed to 60% of sales, did much better with 13% and 17% growth, respectively. Despite a 27% increase in domestic advertising and promotion spends, its domestic business operating profit rose by 15%. That’s the benefit of having lower material costs on your side.
In its international business, the company said organic constant currency sales rose by 15%. That’s excluding the impact of acquisitions and foreign currency movements. This is a bit better than the June quarter’s 13%. Africa and Latin America led sales growth while Indonesia and Latin America contributed to better profitability, according to a company presentation.
Overall, Godrej Consumer’s revenue rose by 9% to Rs.2,245 crore over a year ago, while its operating profit rose by 19.2%. The growth in profit was driven by a 4.7% decline in material costs, which offset increases in all expenditure items—advertising, employee costs and others. Its net profit rose by 22%, partly helped by a lower tax incidence.
Investors should be pleased with the growth in its net profit, which is much better than HUL’s 3.7% growth (excluding exceptional items). The stock is up by 15% in the past six months. Its results show that Godrej’s domestic business is doing well, barring soaps, and some of the problems in its international business are external. That puts it in good standing among its peers and among investors.
The slowdown in rural markets is a risk for the company, more for its soaps business than for the others. It remains to be seen if recovering sales in urban markets can pick up that slack soon enough.