BackP&G’s reaffirmed India focus is positive for listed units
Company says Indian operations will deliver both on revenue and profit fronts in the short and long run
Premium(Pradeep Gaur/Mint )
Since August this year, Procter and Gamble Co.’s (P&G) listed companies in India—Procter and Gamble Hygiene and Health Care Ltd and Gillette India Ltd—have seen their shares diverge on the bourses. P&G Hygiene’s shares have outperformed Gillette’s, though Gillette has made a minor comeback since mid-November. Both subsidiaries are a key part of P&G’s effort to increase contribution from emerging markets such as India.
In a recent global investor meeting, P&G affirmed that a strong momentum in developing markets continues to be a key part of its strategy. It said it will invest resources on the biggest opportunities, and aim for profitable expansion by focusing on growing markets, increasing market share, improving mix, localizing production, and leveraging scale. It is doing all of that in India. India ranks as one of P&G’s top 10 developing markets. Shantanu Khosla, who heads P&G’s India operations, also addressed this meeting, and said that the company’s value share has risen to 12% in FY12 from 2% a decade ago and sales have risen by 30% for each of the past two fiscals. Its distribution footprint has increased by 25% in the past two years, and consumers using its products have risen to 700 million, a 14% increase in just one year.
P&G Hygiene has focused on increasing share of the market for sanitary napkins, as well as growing the market, particularly in rural areas. Growing disposable income and consumption changes in rural areas have aided conversion. This category will continue to grow, as only 20% of the target market uses sanitary napkins at present. The cough and cold segment is a more mature category, with growth coming from expansion in distribution, product variants, marketing, and seasonal factors.
In the September quarter, P&G Hygiene’s revenue rose by 24% to ₹ 375 crore, with Whisper sanitary napkin sales rising 24%, while those of Vicks up by 18%. Sales grew ahead of input costs, but a sharp rise in employee costs and other expenses led to a small dip in operating profit margins during the quarter. Still, operating profit growth was healthy at 21.8%, but a sharp jump in other income, offset by an increase in its tax provision, led to net profit growing by only 5.8%.
In Gillette’s case, its mainstay business of grooming (shaving products) is seeing a similar growth opportunity, as P&G invests in growing share of the existing market, and getting new consumers into the fold with low-priced offerings. In oral care, where it sells toothbrushes, it has been expanding distribution and becoming more visible, prompting speculation on when it will launch its toothpaste brand in India. Batteries is a tough category, with several competitors and stiff price-led competition.
The September quarter saw Gillette’s revenue rise by 26.8% to ₹ 334.8 crore, with sales of its grooming products rising by 30.9%, oral care by 16.5%, and batteries by 26.5%. The grooming business’s segment profit grew ahead of sales growth, helped by a growing sales base and contribution from its new razor Fusion. But both the oral care and batteries business incurred losses, though losses in batteries were lower from a year ago. Gillette’s operating profit fell by 25%, but net profit rose by 34.8% due to higher other income.
Khosla said that the Indian operations will deliver both on the revenue and profit fronts, in the near term and short term, which should be good news for shareholders. Shareholders should expect some quarters of indifferent or poor performance, as some categories will see a longer gestation period, especially for Gillette. That may explain the divergence in the two companies’ share price movements. But both companies are headed in the right direction, benefiting them in the longer run, at which time the scales may tilt in favour of Gillette.
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