Once tobacco was used to stop bleeding and to treat wounds. It was used as currency by Native Americans and even paying taxes. They were used to link to the religion. After a certain time, it was not considered to be used as Medicine. Over time it was looked at as a sin and was affecting health leading to cancer.
In the world, many governments imposed taxes and they have even banned to consumption of tobacco. However, despite these negative effects, tobacco companies are still able to increase their sales and profits despite restrictions. One of the Indian companies is even facing an internal feud which might affect the company. In this article, we will look at Godfrey Philips which is into some internal crisis operating in the Tobacco Industry.
Company Overview Of Godfrey Phillips India
Godfrey Phillips India(Godfrey Phillips), under the group of Modi Enterprises. It is a tobacco manufacturing company. They include manufacturing and distribution of cigarettes, tobacco, and confectionery products. Its product portfolio includes cigarettes with brands Marlboro, Red & White, Four Square, Stellar, Cavanders, Pan Vilas, North Pole & Tipper, Focus, Originals International, Jaisalmer, Black Jack, Ultima, Raag, Sahara, and Force 10.
They also offer a candy brand named Funda. Godfrey Phillips has a procurement and supply agreement with Phillip Morris, ITG, JTI, European Tobaccos, and Eastern Co., to distribute and manufacture cigarettes. Their export destinations include Egypt, Belgium, the Philippines, Germany, Russia and South Africa. It is headquartered in New Delhi.
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Industry Overview
India stands as the world’s second-largest tobacco producer, reflecting its significant role in global agricultural markets. The country produces about 800 million kilograms of tobacco annually, making it a vital part of India’s agriculture. Tobacco cultivation, which uses only 0.24% of the nation’s total arable land, is especially important in semi-arid and rain-fed areas where other crops are not as economically viable.
Thirteen states in India grow tobacco, with various types suited to different agroecological conditions. India produces around 230 million kilograms of Flue-Cured Virginia (FCV) tobacco each year, making it the third-largest global producer of this variety. This production pattern, which includes FCV, Non-FCV, and Non-Cigarette Tobacco products, shows India’s ability to adapt to diverse market demands.
Shareholding Pattern of Promoters
The company’s promoter stake as of June 2024 stood at 72.58% which includes KK Modi and their Trust of 47.48% and Philip Morris owns 25.10% in the overall promoter holding. The FII owns 10.83% which includes the FPI of Jupiter India Select and India Fund of around 7.10%. DII owns 1.90% and the remaining 14.69% is owned by the public.
Inheritance Issues of the Modi Family
Feud Background
The conflict primarily revolves around the inheritance following the death of family patriarch KK Modi in 2019. The family is divided into factions, with Bina Modi, the widow of KK Modi and current Chairperson and Managing Director of Godfrey Phillips, on one side, and her son Samir Modi on the other.
The dispute has been over the management of the company and the distribution of shares, particularly as it pertains to the family trust that holds a significant stake in Godfrey Phillips. There is a dispute even on the rights of the KK Modi Group of Companies.
Samir Modi is one of the children among KK Modi’s three children who are Lalit Modi (former Indian Premier League chairman) and Charu Modi (CEO and vice president of Modi Academic International Institute).
As per some sources, the trust deed contained that inheritance to be distributed in four ways equally which includes Bina Modi and three children. In the event of KK Modi’s wife’s death, the inheritance is to be distributed among the three children equally.
Recent Incidents
In an incident, Samir Modi accused his mother of orchestrating an attack on him during a board meeting. He alleged that he was physically prevented from entering the meeting by Bina Modi’s security officer, and he claimed the officer assaulted him. Samir complained to the Delhi Police, stating that this incident was part of a broader scheme to remove him from the board and deprive him of his inheritance rights. He described the experience as traumatic, and stated, “I had never imagined being assaulted in my own office”.
Godfrey’s spokesperson rejected the accusation and said that this event occurred during the audit committee proceedings in the board room and they captured the incident on CCTV. They can provide the clips to the investigating authorities. The company has maintained that the accusations are part of a smear campaign against her and the board.
Legal Developments
The legal landscape surrounding this family feud has been dynamic. Recently, the Delhi High Court ruled that Bina Modi could vote on behalf of the family trust at the upcoming AGM of Godfrey Phillips. Bina Modi was appointed as MD and received 75% of the company’s shareholder’s vote in her favour in the recent AGM. This decision is crucial as it could influence the company’s leadership. Shareholders ousted Samir from the Godfrey board, but his sister Charu Modi was voted to the company’s board.
Company Implications
The internal strife has affected family dynamics and Godfrey Phillips’s operational aspects. The company is in the process of selling its retail division, which operates under the brand ’24Seven’. This move has been contested by Samir, who argues that the retail business had growth potential and should not be sold off.
He has criticized the decision to divest, claiming it undermines the company’s prospects and the legacy of his father. However, the court has removed the injunction on Godfrey on the retail business which ensures the company can take any decision on its operations.
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Financials and its segments Of Godfrey Phillips India
The company posted a revenue from operations of Rs. 5,304.60 crore in FY24, a 24.52% YoY increase from Rs. 4,259.82 crore in FY23. Net Profits in FY24 stood at Rs. 883.96 crore compared to Rs. 690.42 crore in FY23. Most of the expenses are towards paying material costs, stock purchases, excise duty, employee costs, and other expenses. All of the expenses account for nearly 86% of the revenue in FY24 compared to around 85% in FY23.
They had other income of Rs. 214.26 crore in FY24 out of this 154.36 crore is from long-term investment which is an increase of 113% YoY. EPS improved to Rs. 169.87/share in FY24 from Rs. 132.80/share in FY23. PAT Margins in FY24 stood at 18.38% in FY24 compared to 17.98% in FY23.
Looking at the return on equity it stood at 25.03% in FY24 improved from 23.62% in FY23. The increase in profits greater than the equity base increase YoY has resulted in return improvement. Godfrey has a debt-to-equity ratio of 0.07 in FY24, down from 0.09 in FY23. This reduction and low debt show the financial strength of the company. Trade Receivables turnover has improved from 61.87 times in FY23 to 69.92 times in FY24.
Most of the revenue comes from Cigarettes, tobacco and related products which account for around 91.07%, Retail and related products account for 8.36%, and the remaining 0.57% from others in FY24.
Future Plans Of Godfrey Phillips India
- The company is looking to sustain its growth across all markets and plans to enter new markets with new offerings.
- Management will focus on improving productivity and profitability and aims to strengthen its core tobacco business.
- They are looking to expand its international business, focusing on contract-manufactured cigarettes and unmanufactured tobacco.
- Godfrey intends to strengthen its partnership with Philip Morris International for Marlboro cigarettes in India.
- The company has partnered with Ferrero India in May 2024 to distribute sweet-packaged food products manufactured by them.
- Management will integrate ESG practices into business operations.
- The company will infuse young talent into the leadership team.
- It has begun its plan to exit its retail business operations.
Conclusion
As we near the end of the article, we have looked into the aspects of the company’s business, their recent feud, and some of their plans. Godfrey operates in the tobacco Industry, which is highly dominated by some players and is an oligopoly market. Their competitors like ITC are diversifying into other sectors to reduce their concentration on Cigarettes which still holds a better profit margin for all of its peers.
But, Godfrey is looking to exit from retail and we need to see how the execution of the plans the company lays out. Stability at the top provides more visibility towards business and can concentrate on identifying synergy values. What do you think about the company’s outlook? How can the industry develop? Let us know your views in the comments section below.
Written by Santhosh
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