Looking for NEET / JEE Coaching? Enquire Now

Godrej Consumers: Why to include the stock in the portfolio?


As an investor one has to be in search of good companies with strong fundamentals. In order to lower the risk and increase the reward in the stock market, try to include such companies in your portfolio which saves not only your investments but also awards you with attractive gains for the long term. Godrej Consumers Products Ltd. can be such a company to remain invested for a long time.

The Godrej Consumers Products Limited is a part of 122 years old Godrej Group of Companies having a diverse portfolio with home care, personal care, and hair care products. The company is ranks first in household insecticide, hair color, and liquid detergent and other related products and holds the second-largest market share in the soaps category in the domestic market. Having a presence in Asia, Africa, and Latin America, the GCPL group enjoys the customer base of around 1.15 billion consumers.

Products

  1. Good Night- The mosquito repellant
  2. Godrej Expert- The hair dye
  3. Cinthol-The soap
  4. Godrej No.1- Cleansing bars
  5. Hit- The insects repellant and other such variants
  6. Darling- Africa centered products including braids, weaves, and crochets
  7. B Blunt- The hair care, styling, and grooming products.
  8. Protekt- Handwash and sanitizer products.
  9. Godrej Aer- Room fresheners
  10. Frika- Another African based product portfolio including wigs, braids, weaves and other related products.
  11. Issue- Argentina based hair color products.


The portfolio includes other products too.

Management of the company

  1. Adi Godrej - Chairman Emeritus
  2. Nisaba Godrej - Executive Chairperson
  3. Vivek Gambhir - Managing Director and CEO
  4. Nadir Godrej - Non-Executive Director
  5. Tanya Dubash - Non-Executive Director
  6. Pirojsha Godrej - Non-Executive Director
  7. Jamshyd N Godrej - Non-Executive Director
  8. Pippa Tubman Armerding - Independent Director
  9. Aman Mehta - Independent Director
  10. Narendra Ambwani - Independent Director
  11. Ndidi Nwuneli - Independent Director
  12. Bharat Doshi - Independent Director
  13. Ireena Vittal - Independent Director
  14. Omkar Goswami - Independent Director
  15. Sumeet Narang - Independent Director


Fundamental Valuations on consolidated basis(as on November 4, 2019)

  • Market Cap : 75,452 Crores rupees
  • Book Value : 71.08(as on 4 November 2019)
  • Return on Equity(ROE) : 31.55%(Very good with a 10 year average of around 26.43 percent)
  • Return on capital employed(ROCE) : 20.22%(Quite Good)
  • Promoter holding : 63.24%(Shows trust of the stakeholders in the company)
  • Price to Earning : 36.19(Greater than industry P/e of 35.76 shows expensive valuation than the average but also depicts the market's optimism in the stock)Working capital : 1,565 Crores rupees(shows extra leverage to reinvest in operations)
  • Debt : 3,382 Crores rupees(more than the working capital which makes it unattractive with overall leverage point of view)
  • PEG Ratio : 1.55(not so impressive)
  • Stock price CAGR : 23.03 %(10 years consideration)


Balance Sheet(Consolidated Analysis)

The balance sheet study has been carried out and the following data are available for the year March 2019.

  • Share capital - 102 crores rupees (compared to 68 crores for the year 2018)
  • Reserves - 7165 crores rupees (compared to 6190 crores for the year 2018)
  • Other Liabilities - 3847 crores rupees (compared to 4277 crores for the year 2018)
  • Borrowings - 3382 crores rupees (compared to 3502 crores for the year 2018)
  • Total Liabilities - 14496 crores rupees (compared to 14043 crores for the year 2018)
  • Fixed Assets - 8670 crores rupees (compared to 8315 crores for the year 2018)
  • CWIP - 52 crores rupees (compared to 84 crores for the year 2018)
  • Investments - 516 crores rupees (compared to 997 crores for the year 2018)
  • Other Assets - 5257 crores rupees (compared to 4647 crores for the year 2018)
  • Total Assets -14496 crores rupees (compared to 14043 crores for the year 2018)


Note- The detailed balance sheet for both standalone and consolidated has been provided as an attachment. Kindly refer to those to do the research.

Profit and loss statement consolidated

  • Sales - 10314 crores rupees(compared to 9847 crores for the year 2018)
  • Expenses - 8201 crores rupees(compared to 7783 crores for the year 2018)
  • Operating profit - 2114 crores rupees(compared to 2064 crores for the year 2018)
  • OPM - 20%(compared to 21% for the year 2018)
  • EPS - 22.91(compared to 15.99 for the year 2018)


Cash Flow statement consolidated on March 2019

  • Cash from Operating Activity - 1729 crores rupees inflow(+)
  • Cash from Investing Activity - 274 crores rupees inflow(+)
  • Cash from Financing Activity - 2039 crores rupees outflow(-)


Strengths of the company

  1. A diverse portfolio across product segments with household insecticides (home care), personal care and hair care contributing 29%, 27%, and 32%, respectively in fiscal 2019.
  2. GCPL holds a leading marketing position in household insecticide and hair color segments with the second largest market share in the soaps category
  3. Indonesian market has made a good turnaround after long term difficulties.
  4. The continuous overseas acquisitions like Soft and Gentle' in Europe, Strength of Nature (SON), etc. are leading to diversified product portfolio and geographic presence
  5. It is having a healthy financial risk profile with the company maintenance of adequate cash and bank balance of at least equal to one-year repayment which strengthens the financial risk profile
  6. The debt has decreased successively with a good interest coverage ratio
  7. The innovation and good R&D planning lead to the introduction of other variants in the market, for example, the company is also looking forward to introducing natural henna based variants on a large scale


Weaknesses of the company

  • Macroeconomic challenges like change in the governments, local unrest and other such factors in Africa and UK can impose some profitability troubles.
  • The debt-funded acquisitions are yet to be seen in the preferred results as the value creation is a timely affair
  • Inadequate planning for raw material procurement as mentioned by the directors for the very year imposed some credit-related challenges to GCPL
  • The rate volatility with the devaluation of the local currency in overseas operations can hamper the expected profitability in this highly competitive industry
  • Dependence on natural resources and also the environment concerned regulations are the other challenges.
  • Amidst global inflation in crude oil prices, the price competitiveness is one of the major concerns for the management.


Final Verdict

GCPL is a strong global company with a sound liquidity profile and diverse product portfolio. The FMCG company is having a debt reduction and an increase in the reserves leading to the good use of the investors' money. The valuation of the company as compared to the other FMCG stocks is cheaper but the overall valuation is expensive. Despite this, the company is pretty good to remain invested for a long time and even one can do SIP in this stock if you don't want to wait for the price correction. This could be a good company to study the fundamentals and include the company in the portfolio.

Disclaimer- The article is to give just a start to your awareness about the company. Do your research before investing.


Attachments

  • Godrej financials (177725-1-Godrej-financials.xlsx)
  • Comments

    No responses found. Be the first to comment...


  • Do not include your name, "with regards" etc in the comment. Write detailed comment, relevant to the topic.
  • No HTML formatting and links to other web sites are allowed.
  • This is a strictly moderated site. Absolutely no spam allowed.
  • Name:
    Email: