Godrej consumer products share is one of the top fast moving consumer goods company based out of India. The company is the subsidiary of Godrej Group, which was found in the year 1897 by Ardeshir Godrej. Apart from GCPL, they have 2 other subsidiaries like Godrej Properties and Godrej Agrovet.
The company has a net asset of Rs. 5824 Cr as of Q2’2021. They entered the equity market as a public company by an IPO in January 2001.
This article will bring you a detailed analysis of,
- History of the Company
- Business Overview
- Financial Performance
- Quantitative Fundamental Analysis
- Intrinsic value calculation
- Long term investment benefits over the equity share
on the basis of Q2’2020-21 quarterly results.
The company has posted net growth of 10% Y-o-Y in Revenue over the Q2’2021, with net profit growth of 10.89%. Y-o-Y and 16% Q-o-Q.
Let us understand the other aspects and the environmental conditions which support and affect the growth in detail.
Check out the article on Asian Paints share price review.
HISTORY OF GODREJ CONSUMER SHARE:
The Indian based FMCG company was initially founded in the year 2000 as Godrej Soaps Limited, and later changed to Godrej Consumer Products Limited in the year 2001. In the same year, the company entered the equity market with an IPO price band around Rs. 4 per share.
- The biggest brand Cinthol® was launched in the year 1951 along with Godrej No.1.
- In 1974, they launched Godrej Hari Colour dye
- They launched, Good Knight to control Mosquitos in the year 1994.
As an FMCG company mainly focused on Personal care and household products. Currently, their market share is lead by 5 segments like,
- Household Insecticides.
- Soaps.
- Hair Colours.
- Liquid detergents.
- Air fresheners.
In the past years, the company has developed a strong international presence across Indonesia, Africa, the USA, SAARC, and Latin America.
- In the year 2010, the company acquired Indonesia based Mesagari Limited. They were the leaders in household insecticides, Air fresheners, and baby care.
- Expended their share of voice in the UK by acquiring Keyline brands in the year 2005.
- In continuation, they acquired Rapidol, Kinky in South Africa in the year 2006. After this, they acquired the Darling group, which was the leading hair care company in Africa.
- Followed by the acquisition of Issue and Argencos groups in Argentina in the year 2010. These companies were leaders in hair color.
- Chile was also didn’t missed from their sight of expanding by owning a 60% stake in Cosmetica Nacional.
Here are few subsidiaries owned under GCPL,
- Essence Consumer Care Products Pvt. Ltd.
- Naturesse Consumer Care Products Pvt. Ltd.
- Godrej Hygiene Products Ltd.
- Godrej Netherlands B.V.
BUSINESS OVERVIEW – GODREJ CONSUMER SHARE:
To open the discussion on a positive note, the company to launch powder to liquid hand wash under the brand name Mr. Magic.
The company majorly focuses on 5 segments of business as stated in the history section of the company. The global market is segregated into,
1.Household (Insecticides) – 29%
The complete portfolio of insecticides portfolios are,
- Burning – Good Night natural neem Agarbathi, Good Night coils, Good Night Fast Card
- Aerosol – Hit (3 Flavours), Good Night Power Shots.
- Electric – Good Night Liquid
- Personal
- Naturals
- Non – Mosquito – Hit for a rat, Cracock, Electric bat
2. Hygiene Products – 26%
- The strong current portfolio of soaps, hand wash, and wipes.
- A significant number of new and upcoming launches across geographics in personal and home hygiene
- Strong price-enabled.
3. Value for Money – 24%
- A significant number of products in other categories are cost-effective and can take advantage of consumer downtrading.
- Potential to gain significant share across countries.
- The products are Godrej expert, Darling Empress.
4. Others – 21%
Let us have a quick update on Business of Q2’2021:
- 83% of the global portfolio comprises of Household Insecticides, Hygiene, and value for money. This portfolio has grown almost 17% year o year.
- Household Insecticides delivered strong and sustainable growth of 6% globally.
- The business cluster growth in terms of constant currencies across demographics are
-
- India – 11%
- Indonesia – 3%
- Africa, USA, & Middle East – 10%
- Latin America & SAARC – 46%
-
- The growth in constant currencies across product segments are,
-
- Household Insecticides – 6%
- Hygiene – 27%
- value for Money – 22%
- Others – (-9%)
-
This clearly states, in the duration of COVID-19 lockdown, the sales of Hygiene products along with Value for money lead the show with more than 20%+.
The business was seen a 9% decline in Other product segments, where they have a catalog of air freshener products for room, car, etc.
BUSINESS SEGMENTATION:
Kindly have a look at Qualitative Fundamental Analysis of an Equity Share
The consolidated revenue of the company over Q2’2020-21 is Rs. 2894 Cr. The segment of the regional business is,
- India – 57%
- Indonesia – 15.37%
- Africa, USA, Middle East – 22.53%
- SAARC and Latin America – 6.2
In terms of Indian Business of Q2’2020-21, the consolidated revenue is Rs. 1722 Cr. The Product-wise segmentation of revenue is
- Household Insecticides – 41.34%
- Soaps – 33.8%
- Hair Colours – 8.83%
- Other Categories – 11.61%
- Unbranded and Exports – 4.4%
In which apart from Soaps all the other products are No.1 in their segments and Soap slips to No. 2 in total marker leadership.
Let us quickly have how the business has evolved in the last 10 years in two aspects,
- Geography Expansion.
- Product Segment Expansion.
GEOGRAPHIC EXPANSION:
PRODUCT WISE EXPANSION:
FINANCIAL PERFORMANCE – GODREJ CONSUMER SHARE:
The above image is the glimpses of financial performance by the company in the last 5 years. Here we have taken Revenue, EBITDA, PAT, EPS into the consideration of analysis
- Revenue is grown at a CAGR of 3.68% in the last 5 years. The growth rate is higher than the industry average.
- EBITDA is growing at a CAGR of 8.6% over the last 5 years.
- Net Profit has grown at a CAGR of 10.53% in the last y5 years. The growth rate of GCPL is higher than the industry average net profit growth.
- Over the last 5 years, the company’s market share has increased from 24.73% to 24.82%
While we see all the highlighted points as positive in terms of financial health. FY2019-20 was really a bad outcome as every parameter has slashed down. Will try to understand a few,
- Every year, Q4 was phenomenal for the company which has picturized over the last 5 years.
- In Q4’2019-20, the country was in complete lockdown. This impacted both the import and export of products.
- Consumers only focused on hygiene products, rather than Household Insecticides. GCPL products occupy every household irrespective of financial status.
- Since many lost jobs or incomes interrupted, the demand eventually came down. The same reflected in the result of Q4’2019-20.
- To back the situation, the company has invested in new launches over hygiene buckets like Mr. Magic, Proteckt handwash, and Soaps.
In Q2’2021, the company revenue has backed the average quarterly sales of FY2019-20. So, if not COVID-19 the situation and earnings would be better.
Let us now understand the share price growth over the last 5 years.
In the last five years, the share price has grown at a CAGR of 10.97%. This growth of shares is justifiable as the Net profit also has grown by 10.53%.
The market price was higher on 31st August 2018 with a price of Rs. 897 per share. The EPS during the same period was 15.95 and P/E was 56.23 times the earnings.
Currently, the P/E is at 45.88.
FUNDAMENTAL ANALYSIS – GODREJ CONSUMER SHARE:
Number of Equity Shares – 101.77 Cr shares
Market Capitalization – Rs. 69711.73 Cr
VALUATION RATIOS:
The foremost fundamental analysis of the company is calculating the valuation ratios,
- Book Value – Rs. 77.26 per Share
- Price to Book value (P/B) – 8.83 times
- Earnings Per Share (TTM) – Rs. 14.93 per Share
- Price to Earnings (P/E) – 45.88 (Highly Overvalued)
- Industry P/E – 44
- Dividend Yield – 1.17%
- Debt to Equity Ratio (D/E) – 0.45 (Considerably coming down over years)
- Current Ratio – 1.06 (Minimum Threshold is 2 & CR is coming down the line every year)
- Net Profit Margin (FY2019-20) – 14.94%
- Average Net Profit Margin – 14.72%
- Return on Equity – 18.95%
- The average Return on Equity – 23.72%
- Free Cash Flow growth – 12.02%
- Free Cash Flow (FY2019-20) – Rs. 1436.09 Cr
- EV/EBITDA – 32.74 time (Considerably High Value)
Kindly have a look at how to calculate the Discounted Cash Flow Analysis
EXCESS LIQUID CASH PER SHARE:
Total Liquid Assets:
- Fixed Assets:
-
- Investments – Rs. 3923.76 Cr
- Other Financial Assets – Rs. 7.66 Cr
-
- Current Assets:
-
- Investments – Rs. 449.27 Cr
- Cash and Cash Equivalents – Rs. 26.43 Cr
- Bank Balance – Rs. 21.51 Cr
- Other Financial Assets – Rs. 164.78 Cr
-
Total Liquid Assets – Rs. 4593.41 Cr
Total Liabilities – Rs. 1872.95 Cr
Excess Liquid Cash – Rs. 2720.46 Cr
Excess Liquid Cash per Share – Rs. 26.74 per Share.
SHAREHOLDING PATTERN:
- Promoters – 63.2%
- FII – 26.8%
- DII – 3.1%
- Retail Investors – 6.9%
LONG TERM INVESTMENT BENEFITS:
This is an analysis of investors holding the stock for 20 years right from the time of IPO. The share price of 2000 January was Rs. 4 per share.
Currently, the share price is at Rs. 685. The growth rate of the share price over the last twenty years is just 29.32% CAGR per annum.
When you include the Bonus and Split benefits offered,
- August 2006 – Split 4:1
- May 2017 – Bonus 1:1
- July 2018 – Bonus 1:2
So, taking these benefits into consideration, your wealth would have grown at a CAGR of 46.42%. The invested amount would be grown by 2050 times.
INTRINSIC VALUE – GODREJ CONSUMER PRICE:
5 years growth of EPS – 10.52% (CAGR)
Revenue 5 years growth – 3.68% (CAGR)
EPS (TTM) – 14.93
Considering the Margin of safety at 10% as the company is well established.
The Intrinsic value will be less than Rs. 224 per share. The current market price is traded at 2.05 times the intrinsic value.
INSIGHT TO INVESTOR:
- A company which has always focusing on the needs of the market and the first company to have a vision for Mosquito free India.
- The Company is completely focusing to enlarge the hygiene product portfolio in the next 2 years.
- The business over the last 5 years in terms of profit is really awesome. In addition, focusing on bringing Zero debt company. The main concern is the Current ratio is also coming down.
- The company has never made its shareholders disappoint with bonuses, dividends, etc.
- The real fact, we as an investor should take into consideration that as an established company, the expected growth can be 7-10% per year.
- As an investor, you have to buy the share at conservative and under the real value of the share. Currently, it is trading at 2 times higher than the real value.