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| Godrej Consumer beats Street expectation | | Investment by Temasek and the new acquisition are positive, but frequent equity dilution may be an issue |
| Malini Bhupta / Mumbai Jan 26, 2012, 00:18 IST |
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 Godrej Consumer‘s strategy of thinking local and going global has paid off. The company’s third quarter numbers have come in way ahead of the Street’s expectations, which is no coincidence.
For the last seven quarters, the company has been clocking over 25 per cent sales growth, way ahead of the category growth. While the company's consolidated sales grew at 36 per cent to Rs 1,344 crore, its Ebitda was up 59 per cent to Rs 272 crore. Its India business grew 20 per cent, while the international segment has grown by 30 per cent.
The 3x3 strategy, whereby the company decided to sharply focus on three continents and three categories, is working. The share of soaps is also down from the overall revenue pie.
At 45 per cent of total domestic sales, the household insecticides category is the largest today. This category grew 30 per cent year-on-year in the third quarter, far ahead of the category growth. Personal wash (soaps) also grew by 25 per cent YoY, significantly ahead of the seven per cent category growth. The domestic haircare business grew at nine per cent.
While domestic revenues grew 20 per cent YoY to Rs 779 crore, revenue from its international business grew faster at 59.3 per cent to Rs 567 crore. A large part of the company’s growth has been driven by two segments – household insecticides and Megasari, the Indonesian company.
According to JM Financial, the India household insecticides business and Megasari together contributed an estimated 40 per cent to the incremental revenue clocked during the quarter.
Another reason for the impressive performance could be its urban-centric products and category mix. The company offers value added products and the price hikes taken earlier are not visible in the bottom-line. According to Dhananjay Sinha, equity strategist at Emkay Global, the company may continue to grow at a healthy pace, even if momentum shown in the third quarter may not sustain.
Not only has the company posted a good set of numbers, but Temasek is picking up 4.9 per cent in the company at Rs 410 per share. The company has also announced the acquisition of Cosmetica Nacional of Chile, with annual revenue of $36 million.
The Godrej Consumer management expects this deal to be EPS-accretive in the first year and the deal is expected to conclude by April. JM Financial expects the stock to react positively to this result, but on the flip side, debates on sustainability of its PE multiple are likely to re-surface over the medium term, due to frequent equity dilution and yet another international acquisition.
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