Godrej Consumer Product’s revenue over the first-nine months grew by 15%, constant currency, aided by both its India business (52% of sales) and international business (48% of sales), each of which posted 15% growth. Taking the currency effect into account, the top line grew by 21%, moderately below our full-year expectations of 23%.
New product launches were the driving force behind the strong revenue growth, as the company continues to cross-introduce products between geographies, or use its brands to launch new, affordable products to attract new-to-category users. This investment in innovation and expansion was reflected in higher-than-normal advertising costs, for the company which was at 12.1% of revenue during the first nine months, versus our full-year estimate of 9.5% and last year’s number of 10.1% of revenue. As a result, operating margins (earnings before interest and tax) for the company were at 13.5%, much below our full-year figure of 15.6%. However, we harbor a favorable view of these media expenses, as we consider it to be investment in the firm’s future profitable growth.
Godrej's taxation rate was also at 20%, versus earlier guidance of 22% to 23%, as a result of certain tax benefits from Godrej’s Darling acquisition in Africa. As such, earnings grew by 13% versus our 7% estimate, and we look to revise our full-year forecast shortly. For the moment, however, we are holding the line on our INR 960 per share fair value estimate, and believe the stock is moderately undervalued at current prices.
Our outlook remains upbeat. We're sticking with Godrej's narrow economic moat rating, given its presence in high-growth geographies and underpenetrated product categories in the consumer universe.
