INTERIM REPORT PROJECT TITLE: FEASIBILTY OF THE TARGET GROWTH OF GCPL COMPANY: GODREJ CONSUMER PRODUCTS LIMITED

Submitted To- Prof MK. Seshasaye

Submitted ByAnjani Mohanty Kumar Gaurav Hrisikesh Lule Nibir Mahanta Tanya Chandra 09 51 56 63 110

ABSTRACT

Godrej Consumer Products Limited (GCPL) has set an ambitious target of growing 10 times over the next 10 years from its current turnover of over Rs 4,850 crore through acquisitions as well as normal expansion in both domestic and international markets. This would mean that they have to achieve a compound annual growth rate of 26% over the next ten years. According to Adi Godrej, the company plans to achieve the same via the route of both organic and inorganic growth. The organic growth is aimed at 15-20% while the rest is to be achieved via inorganic growth. The company has recorded phenomenal growth in the past few years chiefly via its acquisitions in Indonesia, South America and Africa. The path seems to have been all rosy till date with success kissing its feet in every footstep; but the retention of the 30% CAGR that it has recorded over the last five years will be a herculean task to achieve. To multiply by ten times in coming ten years, the company needs to implement an effective strategy which should create a lasting impact on the minds of the people, continuously improve its operational efficiency, record phenomenal top line and bottom line figures and retain as well as look for the best talents in the industry

COMPANY INFO
Godrej Consumer Products (GCPL) is a leader among India's Fast Moving Consumer Goods (FMCG) companies, with leading Household and Personal Care Products. Brands, which include Good knight, Cinthol, Godrej No. 1, Expert, Hit, Jet, Fairglow, Ezee, Protekt and Snuggy, among others, are household names across the country. They are one of the largest marketers of toilet soaps in the country and are also leaders in hair colours and household insecticides. Three of its brands have been placed in 100 most trusted brands in the country. Their mission is to continuously enhance the quality of life of consumers in high-growth markets with superior-quality and affordable home care, personal care and hygiene products. They also have a strong emerging presence in markets outside India. As part of increasing its global footprint, they recently acquired 51% rights in the Darling group in Africa. With acquisitions of Tura, a leading medicated brand in West Africa, Megasari Group, a leading household care company in Indonesia and Issue Group and Argencos, two leading hair colorant companies in Argentina, Keyline Brands in the United Kingdom, Rapidol and Kinky Group, South Africa and Godrej Global Mideast FZE, its own international brands and trademarks in Latam, Europe, Australia, Canada, Africa and the Middle East.

COMPANY ANALYSIS SWOT ANALYSIS

STRENGTHS Market leading position garnered on a strong brand portfolio Focus on innovation differentiation through robust R&D efforts and

WEAKNESSES Lack of size reduces competitiveness

Strong financial performance opens avenues for organic and inorganic expansion

OPPORTUNITIES Acquisitions to bolster product extension as well as market acquisition Increasing per capita income drives FMCG sector growth Growth of the home and personal care markets Investments in IT infrastructure to improve operational efficiency

THREATS Increasing abundance of counterfeit goods The need to sustain market share is limiting the flexibility to pass on increased costs to customers Competition intensifying further in most of the companys businesses

FINANCIAL ANALYSIS Overview The company recorded revenues of INR 4866.16 crore in FY2012, which showed an increase of 31.7% over FY2011. For FY2012, India, the company's largest geographic market, accounted for 57.4% of the total revenues. GCPL generates revenues through a single business segment: personal and household care products. However, its revenues can be classified based on the following product categories: home care (47% of the total revenues in FY2012), personal wash (22%), hair care (19%), and others (12%). Revenues by product category During FY2012: The home care product category recorded revenues of INR 2287.1 crore. The personal wash product category recorded revenues of INR 1070.56 crore. The hair care product category recorded revenues of INR 924.57 crore in FY2012. The others product category recorded revenues of INR 583.94 crore in FY2012.

Revenues by Geography

India, GCPL's largest geographical market, accounted for 57.4% of the total revenues in FY2012. Revenues from India reached INR 2852.61 crore in FY2012, an increase of 26.6% over FY2011. Foreign countries accounted for 42.6% of the total revenues in FY2012. Revenues from foreign countries reached INR 2118.78 crore in FY2012, an increase of 50.3% over FY2011.

Top line growth rate The top line of GCPL grew at a CAGR of 38.1%. The gross sales was 989.66 crore in FY 2007 and that increased to 4986.61 crore in the FY 2012.
6000 5000 4000 3000 2000 1000 0 4986.61

Gross Sales

3775.89 2084.27 1438.9 1134.43 989.66

Y 2012 Y 2011 Y 2010 Y 2009 Y 2008 Y 2007

Net sales The net sales after the excise went up from 3693.69 crore in FY 2007 to 4866.16 crore in FY 2012, which showed a growth, rate of 31.75% over previous year. The net sales of GCPL grew at a CAGR of 38.5%.
6000 5000 4000 3000 2000 1000 0 4866.16

Net Sales

3693.6 2043.69 1396.64 1103.98 951.52

Y 2012 Y 2011 Y 2010 Y 2009 Y 2008 Y 2007

Operating Profit The operating profit increased from 186.26 crore in FY 2007 to 914.15 crore in FY 2012, which showed a growth, rate of 28.70% over previous year. The operating profit of GCPL grew at a CAGR of 37.4%.
1000 800 600 400 200 0 Y 2012 Y 2011 Y 2010 Y 2009 Y 2008 Y 2007 914.15 710.28 454.62 247.31 220.49 186.26

Operating Profit

Profit after tax (PAT) The PAT increased from 144.03 crore in FY 2007 to 751.24 crore in FY 2012, which showed a growth, rate of 45.95% over previous year. The PAT of GCPL grew at a CAGR of 39.14%.
600 400 200 0 514.71 800 751.24

PAT

339.59 173.26 159.24 144.03

Y 2012 Y 2011 Y 2010 Y 2009 Y 2008 Y 2007

Earning per share (EPS) The PAT increased from 6.38 crore in FY 2007 to 21.36 crore in FY 2012, which showed a growth, rate of 45.95% over previous year.
25 20 15 10 21.36 15.91

EPS

11.02 6.74 7.05 6.38

The EPS of GCPL grew at a CAGR of 34.26%.

5 0 Y 2012 Y 2011 Y 2010 Y 2009 Y 2008 Y 2007

GCPLs Revenue Growth and Profitability Indicators

Year End Gross Sales Net Sales

Y 2012 4986.61 4866.16

Y 2011 3775.89 3693.6

Y 2010 2084.27 2043.69

Y 2009 1438.9 1396.64

Y 2008 1134.43 1103.98

Y 2007 989.66 951.52

Operating Profit 914.15

710.28

454.62

247.31

220.49

186.26

PAT

751.24

514.71

339.59

173.26

159.24

144.03

EPS

21.36

15.91

11.02

6.74

7.05

6.38

Year End Debt to Equity Current Ratio ROCE PBIDT M (%) PAT M (%) CPM (%)

Y 2012 0.67 1.3 24.94 18.33 15.07 16.36

Y 2011 1.16 0.89 29.74 18.81 13.63 14.95

Y 2010 0.04 1.65 46.83 21.81 16.29 17.43

Y 2009 0.49 2.22 37.86 17.19 12.04 13.38

Y 2008 1.11 1.09 62.12 19.44 14.04 15.64

Y 2007 1.42 1.06 79.96 18.82 14.55 15.99

Expanding geographic reach Strong financial performance opens avenues for organic and inorganic expansion. The strong performance was primarily driven by significant acquisitions international GCPLs and growth of in the
Darling Group (Africa), 900

Keyline Brands (UK), 175

Rapidol (SA), 82

Kinky Group (SA), 71 Tura (Nigeria), 27

operations some

Issue Group & Argencos , 185

Megasari (Indonesia), 650

company. During these five years, made significant

acquisitions including: Tura in Nigeria, PT. Megasari Makmur Group and its distribution company in Indonesia, Issue Group in Brazil, and Argencos in Argentina among others. Further, in FY2012, the company entered into new geographies in Africa and Latin America. The revenues of the companys international operations grew by 50.3% in FY2012 over FY2011. FINANCIAL POLICY - 10X10 STRATEGY

As per the 10x10 Strategy developed by the company recently, the company hopes to achieve a target growth in its business 10 times in 10 years, growing at around 26% CAGR. The management has indicated plans to infuse equity capital into the company if the gearing increases materially beyond the 1:1 level. While the company is expected to have significant net cash accruals and the acquisitions are expected to be funded by low cost overseas debt.

KEY ASPECTS OF THE COMPANY

3X3 STRATEGY Godrej is approaching the foreign market with a 3X3 strategy, i.e., it would focus on three continents viz, Asia, Africa and South America in three core categories- homecare, personal wash and hair care.

AFRICA acquisitions

Advantages enjoyed in Africa: Long standing friendly political relations Geographical proximity puts India on a favourable footing against global competitors Indians have experience with working in unstructured situations Huge and flourishing Indian diasporas Indian products suited to compete in the value for money African market Indo-Africa trade which stood at $3 bn in 2000-01 had gone up to $39 bn in 2009-10; estimated to reach $70 bn by 2015 India has offered 33 least developed countries on the continent facilities to avail of benefits under the duty-free tariff preference scheme Advantages enjoyed in FMCG sector in Africa: Few non-MNC pan Africa businesses Most local brands compete on price with limited focus on brand building

 MNCs operate mostly through a hub & spoke model with little local customized innovation Their pricing is generally very premium and addresses only the top 10% of the market Heritage brands enjoy a significant competitive advantage since building new brands is very difficult Lack of media and communication depth / penetration further reinforces this entry barrier ADVNTAGES IN SOUTH AMERICA: Hair Care market growing at a rate of 22% in Argentina Low Inflation rate in Chile (3%) and a growth rate of 5% Issue Group has a market share of 22% while Cosmeca Nacionale has a share of 17%

MARKETING ANALYSIS
As Indian market has become saturated in FMCG sector with HUL and P&G as market leaders, also keeping in view the prevailing economic conditions which country is going through GCPL step to expand in overseas emerging markets seemed appropriate although GCPL has lot of consumer products that effect the daily lives of people and it is also among the market leader in Hair care, Insecticides and Household products. GCPL from a long time been expanding its product range through a series of mergers and acquisitions both from domestic and overseas market. This has definitely given good returns to the company. If we look at the Q1 results of 2012-13 report than Net sales growth is found to be 39% out of which the contribution from domestic business is 23% and International business contribution is 31%. Also the global businesses accounted for 38 per cent of Godrejs total revenues in 2011-12, up from the 32 per cent the year before GCPL wants to multiply its revenue by 10 times in the upcoming ten years for this Godrej is likely to go in an aggressive mode. To achieve their goal they have to grow organically as well as inorganically.

GCPL BRAND PORTFOLIO

GCPL domestic business:

GCPL domestic business has been growing aided by the acquisition of GHPL.Growth of various segments under GCPL domestic business. So, maximum growth ,i.e, 44% has been observed in Home Care segment that includes brands likeGoodknight smoke coil, GoodKnight advanced, GoodKnight liquid repellant, HIT, Jet,etc.

GCPL international business:

As we can see maximum sales growth is from Indonesia that is from major brands like HIT and Stella.

GCPL domestic market share:

KEY CATEGORIES SOAPS HAIR COLOR HOUSEHOLD INSECTICIDE S-GHPL LIQUID DETERGENT TOILETRIES MARKE KEY BRANDST SIZE MARKET SHARE (bn. Rs.) 89 Godrej#1-7.0% Cinthol -2.6% 12 Expert-24.3% Nupur4.0% 23 GoodKnight-23.5% HIT6.8% 0.7 NA Godrej Ezee-75.8% Godrej Shaving Cream Cinthol Deo Spray Cinthol Deo Talc Godrej Protekt hand sanitizer, hand wash, hand hygiene MARKET SHARE Fair glow- 10.4% 0.5% Renew34% 1.3% Jet-3.1% 33.1% REVENU ES (bn. Rs.)-2010 8.3 2.7 8.1

75.8% NA

0.5 0.8

Inference:
This data shows that GCPL has a very high category market share in Liquid detergent market where market is small and substantial market share in haircolor and Insecticides category but lower market share in Soap category where market size is huge, this is because of the presence of large number of competitors.

Herfindahl Index:
The Herfindahl index (also known as HerfindahlHirschman Index, or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. A A HHI HHI index index below below 0.01 0.15 (or (or 100) indicates a highly an competitive index. index.

1,500)

indicates

unconcentrated

A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration. A HHI index above 0.25 (above 2,500) indicates high concentration. Top 5 FMCG players in India1. 2. 3. 4. 5.

HUL- 22118.64 (Net sales in Cr. Rs.) P&G- 19451 Nestle India- 7490.82 Dabur India-5305.42 GCPL- 4866.16

Hence, HI comes to 0.278 or approx. 28%. This suggests that the market is highly concentrated in India.

Supply Chain and its Enablers for GCPL:

Mfg. Plants Malanpur (Madhya Pradesh), Guwahati (Assam), Baddi- Thana (Himachal Pradesh), Baddi- Katha (Himachal Pradesh) and Sikkim Distribution Network 1,273 distributors, 142 super stockists and 3,175 sub stockists Retailers Consumers

Company headquarter

(Mumbai)

(More than 4.8 lakh outlets)

Information Technology (Sampark, Sahayog,Sampoorna)

Organizational Infrastructure (Business divided into- Soaps, Hair Care, Toiletries, Detergents)

Strategy (M&A and Partnerships in domestic and foreign market)

Human Resource (Bedhadak Bolo, Vikas Path, e-Gyan, Gurukul, PLVR, Customer engagement prog.)

The current Supply Chain Model of GCPL is designed by Mr. Eliyahu Goldratt which is a complete replenishment model based on Theory of Constraint (TOC). For any FMCG company it is important that the Supply Chain is super-efficient. The biggest bottleneck identified for any FMCG is its marketplace. A complete replenishment model depends on continuous information flow on a daily basis. Every day, till midnight, GCPL collects sales and stock data

from its distributors through the IT network. This information flow continues till midnight. Then from midnight to about 4 AM, the company runs the replenishment engine that tells the former which and how much stock needs to be supplied between particular nodes in the chain. And what and how much stock needs to be manufactured. Not only does the daily processing of information keep inventory costs low, it saves costs on several fronts as well. For instance, if we see that a downstream node needs two or three trucks a day, it means some of the products can bypass the hub. That brings down the cost, because some products can travel a shorter route, say, from plant warehouse to a CFA directly. Secondly you save on storage, loading and unloading costs for these products. In replenishment model there is no place for forecasting demand. Some forecasting is done for instance, for Ezee liquid detergents which do better during the winters or Cinthol Talcum Powder that do well during the summers but that is only to see market trends. The superefficient replenishment engine leaves no scope for forecasting. The systems are checked every day to see how different SKUs are moving across different geographies, at each of the distributors. GCPL about 1,200 direct distributors across the country of which Class-A distributors (business of 40 `10 lakh and more) comprise about 30 percent of the total strength, Class B (`10 to 5 lakh) and Class C (less than `5 lakh) distributors comprise the rest. Between GCPL and GHPL, the total numbers of SKUs handled are 400 in number. Quality Management GCPL works only with selected vendors to improve quality and compliance to specifications is compulsory. GCPL has also adopted Total Quality Management (TQM). Cost saving is a threeway street between the vendor, the procurement and manufacturing department, and the R&D (Research and Development). The specification of a product is tailor-made for the least cost. Thats called the total cost of ownership. Focusing more on quality in manufacturing helps in decreasing cost. Reducing variability and using process control approach it helps in reducing the cost. Every step of quality improvement makes the process more cost effective. Inventory Management For a company whose Supply Chain is designed by Mr. Goldratt himself inventory is not a big problem. They use replenishment approach where they try to improve availability of products.

Logistic and Warehousing Online bidding and reverse auction are done with transporters. At the warehouse level, GCPL work with CFAs the latter manage the warehouse to optimize stacking patterns in order to reduce operational warehouse space and also to ensure first-in-first-out (FIFO). The implementation of GST which is expected sometime in 2013 will further decrease the cost. Future Issues According to GCPLs expansion plan for next 10 years supply chain need to strengthen continuously improve. As the market becomes bigger the bottleneck becomes more and more dynamic. The information flow needs to be accurate along with sophisticated data handling techniques. A system which will be very quick in response time needs to be created. The distribution network will also grow, it is very important that the distribution network of future will be developed on the platform of current network. The competencies developed by GCPL will be challenged continuously.

Human resources
The success of a Company depends on its employees. GCPL is proud of its human capital and believes that it constitutes an invaluable asset of the Company. The Company is committed to upgrade the skill set of its employees and to create an environment where excellence is recognized and rewarded. The practice of 'Tough Love' is the HR philosophy at Godrej Consumer Products Ltd. People management is a two-way process. Employees have certain expectations and companies help them in achieving them. The process is tough as it is meritocratic and expectations from high performers keep going up. Love symbolizes the support the organization will provide the coach and mentor and the reward for high performers. Some new initiativesThe Company commissioned an external consultant to undertake an exercise to evaluate and assess talent in the Company. This talent assessment exercise identified the competencies required at different positions and assessed the capabilities and potential of employees vis--vis

these desired competencies. The objective was to identify future leaders as well as to look at ways to bridge the gap, if any, between desired and existing competencies.

Performance managementThe company implemented performance linked variable remuneration (PLVR) scheme for employees on improvement in EVA of the Company. EVA is a measure of shareholder value, and the idea is to directly link remuneration of employees to the improvement in shareholder value. The PLVR scheme has been devised in such a manner that it provides an incentive for employees to create EVA on a long term and sustained basis. Employee input for policy and strategy is taken through the Internal Customer Satisfaction Survey, Employee Perception Survey and 360-degree feedback. Feedback collected from any source, is pooled and then worked upon with definite action plans. The company also has a strong performance linked bonus system and has even extended employee stock options at all levels of management Voice of the Employee is the process whereby HR gets in touch with every employee of the organization at least once a year. Training and developmentit believes that learning should be holistic and fun and hence has introduced GuruKool a summer trainee program which includes a live project with a structured goal, workshops conducted by our senior leaders, as also an award for the best summer project. Also introduced "e-Gyan", the e-learning initiative taken to facilitate world class learning opportunities through electronic media for their employees. Vikaspath- It is an initiative whereby the skill of non-ITI workers is enhanced to be at par with ITI-trained workers. It is a comprehensive 300 lessons module customized for their Malanpur operations. The duration of the course is six months; post which there is an exam and evaluation. The workers who clear the exam are the proud holders of the Vikaspath certification. Godrej Accelerated Learning, Leadership and Orientation Programme (GALLOP), is a special programme designed for new employees. Talent management-

Godrej Consumer Products Ltd (GCPL) has an inclusive culture. It provides good learning and development opportunities. The company cares for its employees, especially in time of need, which has created a family culture. The organization has a unique culture of allowing everyone to develop their thought process, to bring in innovation, knowledge, and entrepreneurship in their personalities. The open culture at GCPL, driven by Bedhadak Bolo (our speak -out campaign) encourages opinion sharing while also creating a platform for people to interact with leaders to see how suggestions get translated into action. Customer and people centricity are at the core of all activities at GCPL to bring alive the promise of a brighter Godrej. This approach towards our internal customers enables us to attract and retain good talent. The positive aspect is that the location is a tobacco free zone, which makes it very hygienic to work. Value and performance driven culture is clubbed with signature focus on transparency and an encouraging, open working style with professional entrepreneurship, making Godrej a great workplace.

Special Long Service Awards, which are based on tenure.Employees who have completed 5, 10, 15 and 25 years in the organization are awarded in appreciation for their service to the company at annual ceremonies, hosted by the Chairman and Managing Director. Whole-time Directors, Managers and Officers of the Company-The components of the total compensation vary for different grades and are governed by industrynorms, qualifications and experience of the employee, responsibilities handled and individual performance of the employee. GCPL has adopted EVA as a tool for driving performance, and has linked improvements in EVA to Performance Linked Variable Remuneration (PLVR). The Company has also stock benefit schemes as detailed in the Directors report, for eligible employees. Non-Executive Directors-At the Extra Ordinary General meeting held on February 21, 2012 the shareholders of the Company have approved such commission as the Board of Directors may from time to time determine but so that such commission shall not

exceed1% of the net profits of the Company in any financial year (computed in the manner provided in Section 349 & 350 of the Companies Act, 1956) or Rs.12.50 lac per director per annum, whichever is less. Corporate governance at Godrej Consumer Product limited

Company's Philosophy on Corporate Governance:

At Godrej, Corporate Governance has been practiced over the past 115 years.

The Company's philosophy on Corporate Governance envisages attainment of the highest levels of transparency, accountability and equity in all facets of its operations and in all its interactions with its stakeholders including shareholders, employees, lenders and the Government. The Company believes that all its actions must serve the underlying goal of enhancing overall stakeholder value over a sustained period of time. The Company continues to enjoy a corporate governance rating of CGR2+ (pronounced as CGR two plus) and Stakeholder Value Creation and Governance Rating ofSVG1 (pronounced as SVG 1) assigned by ICRA. CGR2-The CGR2 rating is on a rating scale of CGR1 to CGR6 where CGR1 denotes the highest rating. The CGR2+ rating implies that in ICRA's current opinion, the rated Company has adopted and follows such practices, conventions and codes as would provide its financial stakeholders a high level of assurance on the quality of corporate governance. SVG1-The SVG1 rating is on a rating scale of SVG1 to SVG6 where SVG1 denotes the highest rating. The SVG1 rating implies that in ICRA's current opinion, the Company belongs to the Highest Category on the composite parameters of stakeholder value creation and management as also corporate governance practices.

KEY RISK AREAS 1. Integration Issues: Some of the businesses acquired by GCPL are still in the integration level. GCPL needs to successfully integrate these businesses to prove its executional capabilities 2. Depreciating INR can yield to rise in cost of dollar denominated debt. 3. GCPLs ability to gain market share in its soap segment could be adversely affected by the aggression of HUL, ITC, Wipro, etc. 4. The entry of players such as Loreal and Schwarzkopf has put pressure on GCPLs hair colour business because of which it has been losing market share at the top end of the market. Entry of local players in lower end could worsen.

Bibliography http://www.godrej.com/godrej/Godrej-ConsumerProducts/index.aspx?id=381 http://www.investopedia.com

http://articles.economictimes.indiatimes.com/2012-07-16/news/32698289_1_godrejconsumer-products-india-s-best-companies-high-performers http://www.godrej.com/godrej/GodrejConsumerProducts/mgntrajesh.aspx?id=381&menuid=2260 http://money.livemint.com/IID93/F132424/AccountingPolicies/Company.aspx http://www.godrej.com/godrej/godrejindustries/download/GIL_annualreport_2001_02.pd f http://www.godrej.com/godrej/GodrejIndustries/download/GIL_annualreport_2005_06.p df http://360.datamonitor.com/Product?pid=90C0D2CA-FF6F-4189-88E4-B6432C018B6E http://www.edelresearch.com_rpt_showpdf.aspx_id=20159&reportname=_Godrej_Consu mer_Products/visit_note-Mar-12-EDEL http://www.godrej.com/godrej/Godrej-ConsumerProducts/pdf/AfricaOperations.pdf Delivering the Goods Godrej Consumer Products Story | K K Books Blog http://shodhganga.inflibnet.ac.in/bitstream/10603/3704/14/14_chapter%204.pdf http://www.ibef.org/artdisplay.aspx?cat_id=447&art_id=30809 http://www.ibef.org/download/FMCG50112.pdf http://www.godrej.com/godrej/GodrejConsumerProducts/Fy201213.aspx?id=381&menuid=2296 http://www.godrej.com/godrej/GodrejConsumerProducts/cpanualreport.aspx?id=381&menuid=2296