52-WEEK BLOCKBUSTER: GODFREY PHILLIPS : Business Line

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Cigarette maker Godfrey Phillips has enjoyed a stellar run on the bourses clocking up gains of 97 per cent over the course of the last one year. The outperformance is a result of market conviction in the ability of cigarette majors to pass on cost increases and hold fort on the volume growth front.

Godfrey Phillips manufactures and markets the globally popular line of Marlboro cigarettes and its own brands Four Square and FS1. The company's topline for the nine months ended December 2011 grew by 8.2 per cent to Rs 2,400 crore. This was driven by a combination of increases in volumes of cigarettes sold, and price hikes undertaken leading into 2011 Budget.

The largest contributing factor was price hikes undertaken in anticipation of excise duty hikes in early 2011 (the latter did not happen). These hikes coupled with relatively stable operating costs helped operating profit margins increase by 1.4 percentage points to 18.3 per cent. Net profits during the same period grew by 27 per cent to Rs 139 crore.

Godfrey Phillips has also been among the most consistent in terms of volume growth managing a compounded pace of 6.5 per cent between 2006 and 2011. But, the hike in excise duties on cigarettes announced in this year's Budget means, companies will have to hike rates by 10-20 per cent to maintain status quo on margins.