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After reading Godrej Consumer Products Limited’s (NSE:GODREJCP) most recent earnings announcement (30 June 2018), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.
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Did GODREJCP’s recent earnings growth beat the long-term trend and the industry?
GODREJCP’s trailing twelve-month earnings (from 30 June 2018) of ₹18.1b has jumped 41% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 16%, indicating the rate at which GODREJCP is growing has accelerated. How has it been able to do this? Let’s see whether it is only attributable to industry tailwinds, or if Godrej Consumer Products has experienced some company-specific growth.
In the past couple of years, Godrej Consumer Products expanded its bottom line faster than revenue by efficiently controlling its costs. This resulted in a margin expansion and profitability over time.
Scanning growth from a sector-level, the IN personal products industry has been growing its average earnings by double-digit 14% over the past twelve months, and 12% over the past half a decade. This growth is a median of profitable companies of 14 Personal Products companies in IN including JHS Svendgaard Laboratories, Cupid and Radix Industries (India). This means that whatever tailwind the industry is profiting from, Godrej Consumer Products is able to leverage this to its advantage.
In terms of returns from investment, Godrej Consumer Products has invested its equity funds well leading to a 29% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 13% is below the IN Personal Products industry of 14%, indicating Godrej Consumer Products’s are utilized less efficiently. Though, its return on capital (ROC), which also accounts for Godrej Consumer Products’s debt level, has increased over the past 3 years from 20% to 20%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 69% to 56% over the past 5 years.
What does this mean?
Godrej Consumer Products’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Godrej Consumer Products to get a better picture of the stock by looking at: