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History of all great works is to witness that no great work was ever done without either the active or passive support of a persons surrounding and ones close quarters. Thus it is not hard to conclude how active assistance from professors could prohibitively impact the execution of a project. Special thanks to Dr. Shridhar Dash (Professor XIMB Finance) for his continued support and guidance extended in completing the analysis, which otherwise could not have been achieved. Last but not the least, we would also want extend our appreciation to those who could not be mentioned here but played their role very well to inspire the curtain.
In this report, attempt has been made by the team to analyse security of Godrej Industries especially Godrej Properties and Godrej Consumer Products as well as a fair comparison with Peer companies, in similar business
Index
INTRODUCTION........................................................................................................................................................................... 3 PRODUCTS AND SERVICES:.......................................................................................................................................................... 4 GODREJ GROUP COMPANIES: ..................................................................................................................................................... 6 COMPETITORS: ........................................................................................................................................................................... 7 SHARE HOLDING PATTERN: ...................................................................................................................................................... 7-8 GODREJ PROPERTIES AND DLF LIMITED:................................................................................................................................................... 7 Analysis: ...................................................................................................................................................................................... 8 GODREJ CONSUMER PRODUCTS AND HINDUSTAN UNILEVER LIMITED: ........................................................................................................... 8 Analysis: ...................................................................................................................................................................................... 8 SHARE FLUCTUATION RATE: ........................................................................................................................................................ 9 SENSITIVITY OF GODREJ INDUSTRIES STOCK : ........................................................................................................................... 10 FINANCIAL ANALYSIS: .......................................................................................................................................................... 11-25 RATIO ANALYSIS: ............................................................................................................................................................................... 11 MANAGEMENT EFFICIENCY RATIO ANALYSIS: ........................................................................................................................................... 11 Debtors Turnover Ratio: ........................................................................................................................................................... 11 Inventory Turnover ratio: .......................................................................................................................................................... 13 LIQUIDITY AND SOLVENCY RATIOS: ........................................................................................................................................................ 15 Current Ratio: ........................................................................................................................................................................... 15 Debt Equity Ratio: ..................................................................................................................................................................... 16 PROFITABILITY RATIOS ........................................................................................................................................................................ 17 Net Profit Margin: ..................................................................................................................................................................... 17 Return on Equity: ...................................................................................................................................................................... 19 DEBT COVERAGE RATIOS ..................................................................................................................................................................... 21 Total Debt to Owners Fund ....................................................................................................................................................... 21 INVESTMENT VALUATION RATIOS .......................................................................................................................................................... 22 Dividend Per Share .................................................................................................................................................................... 22 Net Operating Profit Per Share ................................................................................................................................................. 23 Earnings Per Share Ratio: ......................................................................................................................................................... 24 Plow back Ratio ------------------------------------------------------------------------------------------------------------------------------------------ 24 Growth Rate and P/E Ratio ----------------------------------------------------------------------------------------------------------------------------- 25 CASH FLOW ANALYSIS ............................................................................................................................................................. 256 CASH FLOW: ..................................................................................................................................................................................... 26 RATIO: OPERATING CASH FLOW/NET SALES: ........................................................................................................................................... 26 INVESTMENTS: ..................................................................................................................................................................... 27-29 FUTURE PLANS: ................................................................................................................................................................................. 27 SUBSIDIARY INVESTMENTS: .......................................................................................................................ERROR! BOOKMARK NOT DEFINED. Godrej Properties Vis--vis DLF ................................................................................................................................................. 28 Godrej Consumer Products Vis--vis Hindustan Unilever ......................................................................................................... 29 OTHER DETAILS .................................................................................................................................................................... 30-31 ALTMAN Z SCORE :................................................................................................................................................................. 30 CLIENT INFORMATION ......................................................................................................................................................................... 31 CONCLUSION: ...................................................................................................................................................................... 31-32 CONCLUSION DERIVED FROM FINANCIAL ANALYSIS: .................................................................................................................................. 31 CONCLUSION DERIVED FROM VOLATILE SHARE PRICE: ............................................................................................................................... 31 CONCLUSION DERIVED FROM INVESTMENTS BY GODREJ IND: ...................................................................................................................... 31 REFERENCES ----------------------------------------------------------------------------------------------------------------------------- ------------------------ 32
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Introduction
Established in 1897, the Godrej group has grown in India from the days of the charkha to nights at the call centres. Founder, Ardeshir Godrej, lawyer-turned-locksmith, was a persistent inventor and a strong visionary who could see the spark in the future. His inventions, manufactured by his brother Pirojsha Godrej, were the foundation of todays Godrej Empire. One of Indias most trusted brand, Godrej enjoys the patronage and trust of around 500 million Indians every single day. Its customers mean the world to them. They are happy only when they see a delighted customer smile. With 7 major companies with interests in real estate, FMCG, industrial engineering, appliances, furniture, security and agri care to name a few our turnover crosses 3.3 billion dollars (as on 31.12.2012) . One think of Godrej as such an integral part of India like the Bhangara or the kurta that one may be surprised to know that 26% of other business is done overseas. Their presence in more than 60 countries ensures that their customers are at home with Godrej no matter where they go. With brands one can believe in, service excellence one can count on and the promise of brighter living for every customer, Godrej knows what makes India tick today. Today, they are at a point in Godrejs history when their amazing past is meeting up with its spectacular future head on. Godrej is learning and relishing being young again. Their International operation covers most of Europe, Africa and South Asian countries, as shown below.
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Appliances Offerings in the refrigerator, washing machine, air conditioner and microwave oven ranges.
Furniture Furniture for home, office, educational institutions, establishments, labs, hospitals, shipyard...
FMCG Real Estate Cinthol, Good Knight mosquito repellent, Hair Colour Residential, commercial and township developments. and Hair Dye.
Agri AV Solutions Animal feed, oil palm plantations, agrochemicals and Display solutions, audio video conferencing solutions, poultry. electronic copy boards.
Batteries Godrej and GP Batteries offer a range of zinc chloride, alkaline & rechargeable batteries and a range of chargers.
Construction Variety of construction services like real estate development, ready mix concrete, horticulture and enviro-tech.
Electricals and Electronics Industrial automation, power distribution, compressed air solutions & green business commissioning.
Locks Locking solutions for different security needs to ensure optimum safety. Some of the well known brand...
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Material Handling Counter balance trucks, forklift trucks, tyre handlers, all terrain trucks, attachments and accessories.
Precision Engineering Precision Systems Critical custom-built precision engineering equipments Machining & fabrication, heat & surface treatment, for multiple applications. assembly, testing & supply of complex...
Process Equipment High pressure vessels, heat exchangers, columns, heavy walled reactors and other custom...
Security Solutions Safes, lockers, banking automation products, electronic security systems, premises security & hi-tech doors.
Tooling Die casting dies, press tools, special purpose machines and engineering services.
Vending High quality table top beverage vending machines, services and beverages.
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In our analysis, we will focus on the following 2 verticals of Godrej Industries i.e. (a) Godrej Properties and (b) Godrej Consumer products.
Godrej Industries
Godrej Properties
Competitors:
Type of Industry
Godrej Properties Godrej Consumer Products
Competitor 1
DLF Hindustan Unilever Limited
Competitor 2
Obreoi Reality Proctor and Gamble
DLF
% of Share Demat
58527614 58527614
26 1334803120 26 1334803120
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Analysis:
1) More or less the % of shares held by the promoters and the Institutional non-promoters are same between both the companies. 2) In both the companies, the promoters hold almost 2/3 of the entire shares of the company. This means, the business decisions are mainly of the promoters of the company. 3) While with Godrej Properties, non institutional (non-promoters), mainly Corporate Bodies and Individuals hold maximum shares, it is much less with DLF Limited.
rd
31 216135082 31 216135082
63.51 216135082 63.51 216135082 7 1134849460 7 1134849460 52.49 1134849460 52.49 1134849460
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Analysis:
1) More or less the % of shares held by the Institutional non-promoters is same between both the companies. 2) While the promoters in Godrej Consumer products hold nearly 65% of the shares, it is almost slightly more than 50% in case of Hindustan Unilever Limited. Also, while in case of Godrej Consumer products the promoters are Indians, in case of HUL, the promoters are foreigners i.e. Parent Unilever group. From the share holding patterns of the shares held by promoters, it looks like HUL is more aggressive in raising fund from market to venturing into new projects. This is clearly evident that HUL is number 1 position in Consumer Products. 3) While with Godrej Consumer Products, non institutional (non-promoters), mainly Individuals hold minimum shares, it is much more with HUL.
Interpretation: The figure above shows the month closing price of NIFTY and Godrej Industries over the past
five years. The graph indicates that the stock Godrej Industries has been followed with the recession and boom in the market. The stock has been fairly stable under all market conditions. The stability of the stock may be due to the diversification of Godrej in various businesses, both cyclical and non-cyclical in nature. The FMCG sector may be considered as non-cyclical as the demand of FMCG products is least impacted during recession. The reality or infrastructure sector is cyclical in nature which behaves as per the market trend. Godrej being a conglomerate and having businesses in diversified sector doesnt suffer major shock during the recession phase.
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Interpretation: From the above plot we infer that Godrej Industries has performed consistently well than the market
under almost all circumstances. The return by Godrej Industries is fairly well than the market return.
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Financial Analysis:
Key Indicators Current Valuation Shares Outstanding Revenue Gross Profit EBITDA Net Income Cash and Equivalents Total Debt
Ratio Analysis:
There are many ratios that can be calculated from the financial statements pertaining to a company's performance, activity, financing and liquidity. Some common ratios include the price-earnings ratio, debt-equity ratio, earnings per share, asset turnover and working capital. Here in this project we have classified the important ratios in 5 major headings:
Investment Valuation Ratios Dividend Per Share Net Operating Profit Per Share Earning Per Share
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Based on 5 years data collected from Moneycontrol.com Financial Year Debtors Turnover Ratio Mar '08 5.82 Mar '09 5.12 Mar '10 5.99 Mar '11 8.85 Mar '12 11.01
The debtor turnover ratio has an incremental growth except the year March 2009. Remaining years have shown an efficient working capital and cash management policy in the company. By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Graphical presentation of the Debtors Turnover Ratio for GODREJ INDUSTRIES: Mar 2008 to Mar 20212
Forecasted exponential growth for the year ending March 2013: We have applied the Logarithmic forecasted growth of the debtors turnover ratio through MS Excel spreadsheet. We observe that the forecasted ratio would be around 10.00 in 2013 and 10.10 in 2014 which would be a sign of efficient working capital management. Since we are taking an investment decision here, this cannot be done based on a standalone company basis. Therefore we need compare this ratio of GODREJ INDUSTRIES with that of a competitor. In the beginning of this project we have identified M/s HUL as the competitive player in the industry. Now we have analyzed the past 5 years of data of debtors turnover ratio for HUL. Based on 5 years data collected from Moneycontrol.com Financial Year Debtors Turnover Ratio Mar '08 31.41 Mar '09 41.83 Mar'10 29.24 Mar '11 24.28 Mar '12 27.27
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From the statistical analysis it seems that the HUL would have a ratio of approx 26.00 in 2013 and 25 in 2014. Implication: From the above analysis of Debtors Turnover ratio, we can infer that the HUL has efficient Management decisions and policy to manage the operations in cash basis and to lower the cost of working capital requirement.
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We have also derived the Logarithmic forecasted growth of the Inventory turnover ratio through MS Excel spreadsheet. We observe that the forecasted ratio would be around 8.00 in 2013 which would be a sign inefficient Inventory management. We will try to derive the same kind of result for its competitor e.g. HUL. DLF Ltd has also shown a down trend in the Inventory Turnover ratio. The ratio has declined from 1.1 in year 2008 to only 0.4 at the closing of March 2012. The rate of down trend is around 63.63 % in these four years. Based on 5 years data collected from Moneycontrol.com Financial Year Inventory Turnover Ratio Mar '08 7.2 Mar '09 9.26 Mar '10 8.99 Mar '11 7.91 Mar '12 9.93
As per the Logarithmic trends, the ratio would stand at approx 10.00 at the closing of March 2013. Implication: From the forecasted graph it seems that HUL would be having the ratio at 10.00 whereas Godrej industries would have the forecasted ratio around 8.00.
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We can infer that the HUL has efficient Management decisions and policy to manage the operations in cash basis and to lower the cost of working capital requirement than the Godrej industries. Management Efficiency: From the past and future trend analysis it appears that HUL has a better position in terms of management efficiency and growth opportunities
Current Ratio:
The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Godrej Industries 5 years current ratio: Based on 5 years data collected from Moneycontrol.com Financial Year Current Ratio Mar '08 1.18 Mar '09 0.67 Mar '10 0.69 Mar '11 0.67 Mar '12 0.66
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Current Ratio
Interpretation:
It is observed that the Current ratio of HUL is higher than that of Godrej industries. The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health , it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.
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0.2 0.15 0.1 0.05 0 Debt Equity Ratio Mar '08 0.03 Mar '09 0.19 Mar '10 0.14 Mar '11 0.23 Mar '12 0.21
Interpretation:
It was observed that the Debt Equity ratio is higher in Godrej then the Dabur. Godrej Industries would have higher interest expenses with compare to the peers. This indicates that the earnings would be volatile. In a boom market the company would earn higher profit and hence high dividend to the share holders whereas in slum business situation it will decline drastically.
Profitability Ratios
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.
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Mar Mar Mar Mar Mar '08 '09 '10 '11 '12
Interpretation:
The net profit margin of Godrej Industries is having positive growth trend. In next two years it will be around 10-12 %. The HUL is portraying a declining profit margin. Though the percentage is higher than that of Godrej, its tendency in future seems to be around 11%.
Relationship of Profit Margin to Net Income for Godrej Consumer Products Limited:
Godrej Consumer Products Limited is rated below average in profit margin category among related companies. It is rated below average in net income category among related companies making up about 601,469,238 of Net Income per Profit Margin.
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Return on Equity:
Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. Godrej Consumer Products Limited is rated below average in return on equity category among related companies. It is rated below average in net income category among related companies making up about 240,808,824 of Net Income per Return on Equity.
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Interpretation:
Godrej is rated below average in return on capital employed category with comparison with HUL.
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Mar Mar Mar Mar Mar '08 '09 '10 '11 '12
Mar Mar Mar Mar Mar '08 '09 '10 '11 '12
Interpretation:
Godrej is rated below average in Total debt to owners fund category in comparison with Dabur.
Godrej Industries Dividend per share: Based on 5 years data collected from Moneycontrol.com
Financial Year Dividend per share Mar '08 0.42 Mar '09 0.59 Mar '10 0.54 Mar '11 0.51 Mar '12 0.41
Mar Mar Mar Mar Mar '08 '09 '10 '11 '12 9 7.5 6.5 6.5 7.5
Dividend Per 1.25 1.25 1.5 1.75 1.75 Share The Dividend Yield
Many investors like to watch the dividend yield, which is calculated as the annual dividend income per share divided by the current share price. The dividend yield measures the amount of income received in proportion to the share price. If a company has a low dividend yield compared to other companies in its sector, it can mean two things: (1) the share price is high because the market reckons the company has impressive prospects and isn't overly worried about the company's dividend payments, or (2) the company is in trouble and cannot afford to pay reasonable dividends. At the same time, however, a high dividend yield can signal a sick company with a depressed share price.
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Godrej industry: For the year ending March 2012, Godrej Industries has declared an equity dividend of 175.00%
amounting to Rs 1.75 per share. At the current share price of Rs 309.80 this result in a dividend yield of 0.56%.
HUL: For the year ending March 2012, Hindustan Unilever has declared an equity dividend of 750.00% amounting to
Rs 7.5 per share. At the current share price of Rs 465.05 these results in a dividend yield of 1.61%.
Dabur: For the year ending March 2012, Dabur India has declared an equity dividend of 130.00% amounting to Rs
1.3 per share. At the current share price of Rs 146.50 these results in a dividend yield of 0.89%.
Interpretation:
From the above observations, its clear that the share price of Godrej Indus tries is higher than it suppose to be.
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Scrutinizing above these two results a few lines above net income on the income statement may be not only relevant in terms of past operational performance, but also more meaningful for a future perspective.
Interpretation: Godrej is rated below average in NOP per share category with comparison with HUL.
Earnings per Share Ratio: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. Based on 5 years data collected from Moneycontrol.com Company: GODREJ IND HUL COLGATE DABUR DLF Avg. Earnings per share 3.402 10.562 26.386 3.67 8.468
Avg EPS
DLF DABUR COLGATE HUL GODREJ IND 0 5 10 15 20 25 30 GODREJ IND HUL COLGATE DABUR DLF
Interpretation:
The Average EPS is calculated from the last five years data. In comparison with the peer companies the Godrej industries is having a low EPS rate, which is not a good sign for investment point of view. Lower the EPS rate lower should be the share price.
Plowback Ratio
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Interpretation:
The plow back ratio for Godrej Industries has been increasing since 2010, compared to other competitors. This means, Godrej Industries is looking for an opportunity to invest in projects which will increase its share value. (Provided the ROE of the new project is higher than the cost of Capital WACC)
Growth Rate: Growth Rate (g) is defined as b x ROE i.e. Plow back Ratio x Return on Net Worth. A summary of
growth rate for Godrej Industries and its nearest competitor is shown below.
Interpretation:
The growth rate of Godrej Industries is increasing since 2010 onwards at a slower pace compared to HUL. This means, there are other opportunities to invest in stocks like HUL than Godrej Industries.
P/E Ratio: Price Earnings Ratio which is ratio of price per share to earnings per share is commonly known as P/E
Ratio. This ratio is commonly used for valuation of a company.
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Interpretation:
From the above graph, it is evident that Godrej Industries have P/E ratio higher than other peer companies but this ratio is decreasing year on year, possibly due to the fact that the company is a matured company and investment opportunities are less. However, the other peer company like HUL has an increasing trend of the P/E ratio from 2009 onwards, even though this company is equally matured. P/E ratio for DLF has been in consistent over the entire business cycle.
Cash flow:
Based on 5 years data collected from Moneycontrol.com Financial Years Net Cash From Operating Activities Net Cash Activities (used in)/from Investing Mar '08 50.3 (262.61) 481.24 Mar '09 44.5 (367.59) 57.32 Mar '10 77.1 99.11 (189.64) Mar '11 115.67 26.36 (113.01) Mar '12 204.05 (4.47) (183.58)
Ratio: Operating Cash flow/Net Sales: Based on 5 years data collected from Moneycontrol.com
Companies: Avg. Operating Cash flow Avg. Net Sales Ratio (Operating Cash flow/Net Sales) Godrej Ind 98.324 968.936 0.10 Marico 181.976 2164.826 0.08 Dabur 395.416 2880.628 0.14 Colgate 357.28 2051.388 0.17 HUL 2380.252 18792.5 0.13
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Interpretation: From above observations of 5 companies, we observe that Godrej Industries do not have much impressive cash flow with respect to the net sales figures in last five years.
Investments:
Godrej industries has interests in several industries including animal feeds, poultry and agro-products, oil palm plantation, property development, personal and home care, beverages and confectionery, etc. through its subsidiary / associate / joint venture companies.
DLF
3-4 Projects in Gurgaon up to an investment which will generate sale of approx. 1500 Crores.
DLF Ltd and Haryana Urban Development Authority (HUDA), in public-private partnership, have commenced the work for a 16- lane, 8.3 km road network in Gurgaon. The expected investment will be around 550 Crores. Launch of many shopping malls and residential projects with an approximate area of 13-15 million square feet.
DLF New Project ULTIMA provides you Super Luxury apartments situated in Sector 81, Gurgaon. The project is spread across 22 acres with 874 apartments
Deal signed to act as Development Manager for all Land owned by Godrej & Boyce, in Vikhroli Mumbai. Godrej Gold County, Bangalore Residential Township at Panvel (Mumbai) Ghatkopar Redevelopment Deal, Mumbai Godrej Serenity, a premium residential project at Chembur, Mumbai Phase1 of Godrej Horizon, a premium residential project at Undri, Pune
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Analysis:
1. Value wise, Godrej Properties does not have so many projects compared to DLF. 2. While Godrej Properties have focussed on core business i.e. constructions, DLF used to focus on non core business like Wind Energy over and above constructions. However, recently they have sold their all non core business and focussing on core construction business. 3. Mumbai being a very old city, GPL has a very good share of business in rebuilding of Residential Township in the vicinity of Mumbai. 4. While GPL has focussed on constructions of Residential as well as Commercial complexes, DLF has other additional construction business like 16 lanes Highway between Gurgaon to New Delhi.
in
Share
Year
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Analysis:
1. Since listed in SENSEX and NIFTY, GPLs share prices have been on rise excepting for the FY 2013, where there is a fall in share prices compared to FY 2012. However, in case of DLF since listing, there is a consistent fall in share prices with an exception for FY 2013. 2. While the overall return till date since listing +ve i.e. 17.43% for GPL, it is ve i.e. -72.41% in case of DLF.
Year FY FY FY FY FY FY FY FY FY FY 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Average Share Prices in Godrej Consumer Hindustan Products Unilever 35.37 58.75 115.93 160.71 131.99 125.98 229.59 365.45 423.61 672.08 174.41 133.97 183.99 229.12 209.77 240.92 258.18 275.78 355.54 485.05
% Returns
Year FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Godrej Consumer Hindustan Products Unilever 66.10% 97.32% 38.62% -17.87% -4.56% 82.24% 59.17% 15.92% 58.66% -23.19% 37.34% 24.53% -8.44% 14.85% 7.17% 6.82% 28.92% 36.43%
in
Share
1800%
178%
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
Hindustan Unilever
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Analysis:
1. Since last 10 years, both GCPs as well as HULs share price has been on rise excepting for the FY 2008. However, the trend is similar for both Godrej Consumer Products as well as HUL. 2. While the overall return till date since last 10 years is very impressive for Godrej Consumer products (approx. 1800%), it is relatively less in case of HUL (Approx. 178%).
Others Details
Altmans Z Score
The Z-score formula for predicting bankruptcy was published in 1968 by Edward I. Altman who was, at the time, an Assistant Professor of Finance at New York University. The formula may be used to predict the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-tocalculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. The output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of becoming bankruptcy. The Altman Z-score is based on five financial ratios that can be calculated from data found on a company's annual report. The Altman Z-score is calculated as follows:
Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5 Where: X1 = Working Capital / Total Assets (measures liquidity) X2 = Retained Earnings / Total Assets X3 = Earnings before Tax and Interest / Total Assets (measures how effectively the company uses its assets to get return) X4 = Market Value of Equity / Total Liabilities (measures the markets view of the companys health) X4A = Book Value / Total Liabilities X5 = Sales / Total Assets (indicated asset turnover) A score below 1.8 means the company is probably headed for bankruptcy, while companies with scores above 3.0 are not likely to go bankrupt. The lower/higher the score, the higher/lower is the likelihood of bankruptcy. The value of the Z-Score indicates the health of a company, with a higher value being better. The equations use the following financial information. For the Godrej Industries, we calculated the Altmans Z score for the entire business cycle from Year 2008 till 2012 and the summary is mentioned below.
Factors Weight 1.2 X1 (Working Capital/Total Assets) 1.4 X2 (Retained Earnings / Total Assets) 3.3 X3 (Profit Before Tax and Interest / Total Assets) X4 (Market Value of Equity / Total Liabilities) 0.6 X5 (Sales / Total Assets ) 1 Altman's Z Score 2012 -0.050404 0.6340864 0.3410368 3.7289713 0.5918429 5.2 Safe 2011 0.051654953 0.693225999 0.310808037 3.387771404 0.597722134 5.0 Safe 2010 0.0788573 0.7233328 0.2447492 3.0699044 0.5214945 4.6 Safe 2009 0.119175404 0.727677791 0.131617456 1.162200175 0.487769342 2.6 Concern 2008 0.28121 0.75893 0.26277 6.68145 0.43541 8.4 Safe
Interpretation:
For all the previous 5 years, the Z score of Godrej Industries is more than 3 (excepting for 2009) and hence we can safely interpret that the probability of Godrej Industries going bankruptcy is very less and it is safer.
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Client information
As indicated earlier, for Godrej Properties, most of their clients are general public, commercial establishments and its own Parent Company i.e. Godrej & Boyce, while for DLF it is Public, commercial establishments and State Govt (Like Haryana) for Highways. In case of Godrej Consumer products as well as HUL, the customers are general public in general.
Conclusion:
1) From Financial Analysis:
The stock price of Godrej Industries is inflated. From the comparison with the peer companies we observe that the earnings per share and dividend yield rates are lower than those of other companies. The management lacks the ability and traits to utilise the inventory and debtors in its favour. The turnover ratios are inferior to the peers. In case of a bearish market The Company would feel crunch on working capital position. The liquidity and solvency ratio needs improvement. The Company is using borrowed capital on a larger scale. This would burden the organisation with higher interest expenses. The net profit per share is lower than that of industry average. The overall financial condition of Godrej Industries can indicate two things: (1) the share price is high because the market reckons the company has impressive prospects and isn't overly worried about the company's dividend payments, or (2) the company is in trouble and cannot afford to pay reasonable dividends. At the same time, however, a high dividend yield can signal a sick company with a depressed share price. In the view of above, we recommend a short position in Godrej industries stock.
To conclude, we should not invest Godrej Industries Stock, due to following:1. Though the company has declared dividend year after year, it indicates that the company does not have much scope of investment that is why its not creating assets or reserve by keeping the dividend. 2. When compared with the peer companies, we are having better investment opportunity in HUL rather than Godrej. The financials are in favour of HUL. Even the earning per share is higher in HUL and Colgate. 3. The price of Godrej is exaggerated. The dividend yield is in against of this company's share trading price. Based on the annual result of HUL for FY 2013, its meeting the street prediction. The shares are as high as 6% to 497.6 4. Further, looking at the growth rate of Godrej Industries, even though the growth rate seems better and increasing at a higher rate since year 2010, there are other peer companies like HUL where the growth rate is much higher.
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5. Looking at the P/E ratio for the Godrej Industries, it is clear that the price earnings ratio is steadily declining since 2010, possibly due to that fact that the company is matured and there are very less investment opportunities, compared to the other peer company like HUL where this ratio is increasing from 2009 onwards. 6. Godrej Industries may be considered as a place of investment in comparison to the returns expected from the market. But, with respect to its peers, it has not performed at par and doesnt have enough space for new investments.
References:
1) 2) 3) 4) www.moneycontrol.com Godrej Industries Annual Reports from 2008 till 2012 Altmans Z score template Study Material of Prof. B V Ramanna - XIMB Other study material from internet and prescribed books
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