| Rising input costs and higher sales of low-margin soaps mar numbers.
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| Godrej Consumer Products’ (GCPL) margins in the March 2007 quarter were adversely affected by the rising cost of key inputs such as palm oil, coupled with higher growth in low-end soap segments (like Godrej no 1) which made it difficult to absorb higher costs.
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| As a result, its consolidated operating profit grew 13 per cent y-o-y to Rs 43.1 crore in the March 2007 quarter, on a net sales growth of 26.6 per cent growth to Rs 242.4 crore. Its operating profit margin also declined 210 basis points y-o-y to 17.8 per cent in the last quarter.
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| This pressure on margins was owing to adjusted raw material costs as a percentage of net sales rising by 50 basis points y-o-y to 45.4 per cent in the last quarter.
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| The Street appears to have factored in the margin pressure for the company in the last quarter - the stock has declined 9.5 per cent over the past three months compared with 12.9 per cent rise in the Sensex.
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| Meanwhile, in its soap division, segment revenue grew 19.3 per cent y-o-y in Q4 FY07 and it helped Godrej’s market share rise 20 basis points to 9.4 per cent.
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| However, higher input costs resulted in segment profit rising merely 2.7 per cent y-o-y in the last quarter. In its personal care division, segment revenues grew 34.6 per cent y-o-y in the last quarter, thanks to a price hike for its hair colour repertoire in December 2006.
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| For FY07, the company’s consolidated operating profit margin fell 130 basis points y-o-y to 18.9 per cent. The company’s growth will be powered by recent product launches such as Fairglow soap.
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| In addition, the company has recently hiked prices of soaps by 5-8 per cent and that should help to reduce pressure on its operating margins over the next few quarters. At Rs 133, the stock trades at 18 times estimated FY08 earnings. |
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