Godrej Inds Q3 net up; bullish on property development biz

Godrej Industries has declared its third quarter results of FY10. Its consolidated net profit increased 769.05% to Rs 43.8 crore versus Rs 5.04 crore (YoY). Its consolidated net sales went up 7.44% to Rs 852 crore from Rs 793 crore (YoY).

In an interview with CNBC-TV18, Adi Godrej, Chairman and Managing Director, Godrej Industries, speaks about the results and his outlook for the company.

Here is a verbatim transcript of the exclusive interview with Adi Godrej on CNBC-TV18. Also watch the accompanying video.

Q: Take us through your numbers this quarter? What went right this quarter for you?

A: You must remember that the October-December quarter last year was one of the worst quarters in India’s recent economic history, so it was a poor quarter. All our businesses have recovered; all the businesses under the Godrej Industries have been doing well. Godrej Consumer Products especially has done exceedingly well and Godrej Industries owns about 25% of Godrej Consumer Products, so that adds considerably also to the bottom-line. I would say that the excellent results are a combination of all the businesses doing much better than last year.

Q: For Godrej Consumer Products, the numbers are very good and you did complete your 49% acquisition in Godrej Sara Lee, what is the prognosis for the consumer business going forward? Now, that you have completed this acquisition, how does it benefit you in terms of synergies going forward?

A: The consumer business is doing exceedingly well. Godrej Consumer Products posted a sales growth of 53% in Q3 and PAT growth of 112%, the business continues to do well. We must remember that the topline growth is a little muted than the earlier quarters because now there is only volume growth reflecting in value growth, earlier it was both volume and price reflecting, so now all growth is more or less volume growth. But the profit growth continues to be exceedingly good and we expect that business to continue to do well. We look forward to considerable inorganic growth also in the next quarter and the year to come.

Q: Has there been any impact in terms of your margins from the agri business front because I believe feed stock costs have increased a little bit?

A: Agri businesses have done much better than last year and they continue to do well.

Q: What about your chemical business and what the outlook there because that is the one that has broken back into the black, last time you had a loss of about Rs 24 crore, this time you have gone back into a wee bit of profit, this is pretty much at the EBITDA level at about Rs 6.3 crore?

A: The chemical business has turned around, last year was a very bad year for chemical business, raw material prices were very high and global demands were very export oriented. Global demand was down last year, it’s picked up, and profit margins have improved. Going forward, we expect the pick up to be even better, so that business has certainly turned around and last year was exceptionally bad year for the chemical business.

Q: Post your Godrej Properties IPO everyone is interested on your newest baby form the real estate space, what sort of a contribution for Godrej Industries as a whole are we looking at in the ensuing quarters from the real estate business?

A: Godrej Properties will play an increasingly strong role in Godrej Industries because Godrej Industries continues to hold 70% in Godrej Properties. It has a tremendous future, I am talking of a medium to long term future, affordable hosing is to my mind going to be the big news story of the next decade, its growth is likely to be very rapid, everything is falling into place for affordable housing to grow smartly; the demand is there, costs are reasonable and mortgages are available freely and at reasonable rates.

I also expect that the government will encourage affordable hosing through interest subvention and mortgage rates. So, we are extremely bullish about our property development business in the medium to long term. We will soon open up a couple of major projects like the Ahmedabad project, which is a major one, it’s the only township I can think of within the municipal limits of a large Indian metropolitan area. So I expect Godrej properties to continue to do well and its impact on Godrej Industries certainly will be quite substantial.

Q: What about Godrej-Hershey’s in terms of your confectionary business and how you see the topline expanding there? In terms of your raw material costs, the sugar prices has gone pretty much to the roof, is that going to impact profitability a little bit in that sense?

A: That is the only business under Godrej Industries which is under pressure. Sugar prices have increased dramatically, not only in India but all over the world, imported is as or more expensive than Indian sugar. So that business is under pressure. Another problem in the confectionary industry is that it’s not easy to increase the prices, so sometimes you need to reduce weight. It’s a difficult business with these present sugar prices. So I would say we need to wait till the prices come down to see strong growth and performance in that business.