May 17, 2012, 07.06 PM | Source: CNBC-TV18

Godrej eyes strong growth in FMCG arm, expects GST in FY13

In an interview with CNBC-TV18, Adi Godrej, Chairman, Godrej Industries expects strong growth in Godrej Consumer Products in the next fiscal too. He said that the company is doing exceptionally well in the domestic front.

Adi Godrej, Chairman, Godrej Industries
The MSCI (Morgan Stanley Capital International) global indices are being reconstituted and the latest entrant to the index is Godrej Consumer Products . Effective from 31 May, Godrej Consumer Products along with Bank of Baroda and Cairn India will be a part of the indices.

Soon after the announcement, Godrej's stocks touched new highs and in an interview with CNBC-TV18, Adi Godrej, Chairman, Godrej Industries said that he expects strong growth in Godrej Consumer Products in the next fiscal. "The company is doing exceptionally well in the domestic front and the international business continues to grow in line with expectations," explained Godrej.

Speaking about the real estate arm of Godrej Industries, Godrej Properties , he said that it will continue with new launches in FY13. The company has signed two redevelopment projects in Mumbai and believes that the real estate margins will contract in FY13. Godrej also recommends a strong momentum in the reform process and says that India needs better governance to revive growth.

Godrej is also of the view that the government needs to address issues related to subsidy and Foreign Direct Investment (FDI) in retail. He also expects the Goods & Service Tax (GST) to be in place by the end of FY13. 

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: We will get down to Godrej Consumer Products. Your view with regards to the domestic business because that one was up around 21% last quarter and in Q4. What is the growth trajectory that you expect for FY13 then?

A: We expect a very strong growth in FY13. Sales in April and May have been very good domestically. Growth rates have accelerated and consumer confidence seems strong and I expect the FMCG sector will do well in this financial year. Godrej Consumer Products should be doing exceptionally well in the domestic front.

Q: Your stock has seen new highs in the past week and that’s also because of the MSCI (Morgan Stanley Capital International) including your stock in its index. But there seems to have been some bit of good news coming in also from the Palm oil prices. There has been a huge crash in the Malaysian Palm Oil prices. Should we expect that your margins could see a quantum leap or a substantial improvement in this quarter itself?

A: First of all palm oil prices have not come down that much and secondly, we don't use palm oil. We use the by-products of palm oil like palm fatty acid distillate (PFAD) and palm stearine. Their costs have been stable for the last few months so, there is not a big cost reduction. We expect some cost reductions and if there are cost reductions, it can help improve margins in soaps.

Q: Can you give us some outlook with regards to the international business and how that is doing with regards to Godrej Consumer?

A: Most of the geographies in which we have businesses, Africa, Indonesia, South America, the economies are doing well. Our growth rates are good. We expect good growth this year in our international business also.

Except for Europe, most economies are doing reasonably well. Even yesterday the information from Japan was positive. The United States feedback is positive. Europe is the difficult place.

Q: You would expect the run rate of around 20% to continue in terms of revenues as well your margins, I think it’s about 18-19%?

A: I wouldn't like to give any guidance but we are growing very well. Last year, we grew very well in our international business. Of course, we have some acquisition related increase in international business also. That will continue in 2012-13 but, we expect growth to be very strong in 2012-13.

Q: What is the situation in the Mumbai real estate space? We get contradictory reports that with a change in municipal headship there have been an increase in prices as business has improved. Yet there are some research reports which say that for the year ended FY12, home prices actually fell by about 10%. What is the situation in the ground, what is the experience for instance at Vikhroli where you have personal experience. Are prices and volumes showing any tendency to rise?

A: In Vikhroli our sales have been very good. Our new residential projects in Vikhroli have done extremely well and prices over the last couple of months have risen. We have effected two price increases and we expect strong demand as we introduce new phases and I expect prices will continue to rise.

Godrej Consumer stock price

On November 26, 2015, Godrej Consumer Products closed at Rs 1258.00, up Rs 1.40, or 0.11 percent. The 52-week high of the share was Rs 1456.65 and the 52-week low was Rs 830.00.

The company's trailing 12-month (TTM) EPS was at Rs 20.14 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 62.46. The latest book value of the company is Rs 99.35 per share. At current value, the price-to-book value of the company is 12.66.

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