Fundamental Analysis by Godfrey Phillips – Future Plans & More
Fundamental Analysis by Godfrey Phillips: Tobacco is a harmful yet highly profitable product. It is known to cause serious health problems and kill millions of people every year. However, it can be a huge money maker for certain companies. Today we will be one of the manufacturers taking advantage of a $17 billion industry.
Fundamental Analysis by Godfrey Phillips
Let’s take a look at how the company operates, what products it sells, and how government rules and regulations affect cigarette manufacturers. Despite the health risks, the tobacco industry still employs many households and is a strong part of the economy. Without further delay, let’s find out more about the company.
Fundamental Analysis of Godfrey Phillips – Company Overview
Godfrey Phillips India It is the flagship company of Modi Enterprises. Godfrey is one of India’s largest FMCG tobacco companies. It is a company that manufactures some of the most popular cigarette brands in the country. four square, red white, Cavenders, tipperand North Pole. It also manufactures and distributes the iconic brand Marlboro under a licensing agreement with Philip Morris.
With its already established brands and operations in the FMCG tobacco industry, the company has also expanded its presence in the confectionery and retail sectors. It launched premium retail chain 24Seven and established itself as an already strong brand.
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The company’s business can be divided into three segments: tobacco sector, leaves & Confectionery products.
- Tobacco sector: Domestic cigarette brands include Foursquare, Red & White, Cavanders, Stella, and Focus.
- Leaf classification: Godfrey Phillips India has an independent ‘leaf division’ located in the tobacco growing region of Guntur in southern India, ensuring access to the highest quality tobacco. Few companies have the R&D and quality assurance facilities to support their operations in India.
- Sleeve: 24Seven is an Indian retail chain in the form of 24-hour convenience stores with over 145 stores/kiosks across Delhi NCR, Punjab and Telangana. The company is expanding its presence in food and beverage and private label items to increase gross margins.
Industry Overview
India is the world’s second-largest tobacco producer, with annual production of 800 million kg, and the third-largest tobacco exporter after China and Brazil. Indian tobacco accounts for 10% of the world’s land area and 9% of total production. Tobacco cultivation is a drought-resistant and short-season crop. It is one of the major commercial crops contributing significantly to the socio-economic environment of India.
India has an edge over other major tobacco producing countries due to its low production costs and average agricultural and export prices. In India, tobacco is grown in 13 states. Given its highly labor-intensive production methods, the tobacco industry provides direct and indirect employment to more than 45.7 million people engaged in the processing, manufacturing and export of tobacco and products.
In India, legal cigarette consumption accounts for only 8% of total tobacco consumption, which is in stark contrast to the global scenario where legal cigarettes account for 90% of tobacco consumption. The remaining 92% of India’s tobacco consumption consists of various traditional products such as chewing tobacco, bidi and Khaini.
The domestic tobacco industry showed further signs of recovery in FY23 as the economy recovered due to normalization of market operating conditions. But global geopolitical Escalating tensions, hyperinflation and supply chain disruptions have been new challenges this year.
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Fundamental Analysis by Godfrey Phillips – Finance
Sales and Net Profit
Godfrey Phillips reported FY23 revenue of Rs. 4260 Cr, a 32% jump from Rs. 3229 Cr in FY22. The company had a strong year in terms of revenue growth, driven by new product/variant launches and product expansion in other regions.
Godfrey Phillips’ revenue growth has been somewhat inconsistent over the long term, with strong double-digit growth in FY20 and slower and slower growth in FY21 and FY22. Since 2019, sales have increased at a CAGR of 13%.
The company’s net profit increased by 58% to 50 billion won. 438 Cr in FY22 to Rs. 690 Cr in FY23. Margins improved as manufacturing and employee costs decreased as a percentage of sales. The company’s profits increased significantly in FY20 and FY23, growing at a CAGR of 28% since FY19.
profit
In terms of operating margins, Godfrey has continued to improve its margins year after year. From a five-year low of 18.71% in FY19, it rose up to 26% by FY23. The average for the past five years is around 24%.
The same story continues with net margin improving from a low of 10% in FY19 to a five-year high of 18.51% in FY23. Although NPM has reached nearly 20%, this may not be sustainable, partly due to the increase in other income.
rate of return
The company’s returns have continued to improve due to improved earnings over the past five years. In FY23, Godfrey Phillips had ROE of 20.65% and ROCE of 24.25%. As the company took on more debt and repaid it over the years, its return on equity moved between 15 and 20 percent.
debt analysis
The company is a well-established business that does not need special funds for expansion. Because of this, we maintain a fairly low debt ratio. However, the company increased its debt in FY21, hitting a high of 0.16x debt-to-equity ratio, but the figure declined due to repayments and increased capital.
Since the company has a low debt-to-equity ratio, the interest coverage ratio figure is not very important. As of FY23, Godfrey Phillips’ interest coverage ratio is 26.6x.
Fundamental Analysis by Godfrey Phillips – Key Indicators
key indicators Godfrey Phillips They are listed below.
Fundamental Analysis by Godfrey Phillips – What’s Next?
- The Company is committed to enhancing shareholder value by expanding its portfolio and seeking new growth opportunities.
- Add pricing power to key brands
- We will invest in product development and rapid adoption of digital technologies across all operating modes.
- Godfrey India plans to exit its chewing products business. To begin the exit, it has already sold the trademark, title, rights to leased land and other interests.
Read More: Smart Metering Stocks in India
conclusion
Godfrey Phillips is one of the largest cigarette manufacturers in India, known for popular brands such as Four Square, Red & White, Cavanders and Marlboro (subject to licence). Despite the health risks associated with tobacco products, the company operates profitably at Rs. 17 billion Indian tobacco industry employs millions of people.
The company’s financials showed strong revenue growth of 32% in FY23, reaching Rs. New product launches and geographic expansion led to $426 billion. Net profit also increased by 58% to 30 billion won. Achieved $69 billion in improved margins from manufacturing and staff cost savings.
Godfrey Phillips has continued to improve its operating and net profit margins over the past five years, with net profit margins hitting a high of 18.51% in fiscal 2023. The company maintains a relatively low debt-to-equity ratio due to its strong business and limited need for special funding.
Going forward, Godfrey Phillips aims to increase shareholder value by expanding its portfolio, addressing new growth opportunities, adding pricing power to its flagship brands, investing in product development, and leveraging digital technologies across its operations.
Additionally, the company plans to exit its chewing products business in line with its core focus on tobacco and related products.
Written by Nasir Hussein
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