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Gillette: Not so encouraging

Mar 29, 2001

Gillette India (earlier Indian Shaving Products Ltd.) has doubled its revenues for the year ended December '00. The company's profits also increased by 36% during the same period.

December ended (Rs m) FY00 FY01 Change
Sales 2,500 5,168 106.7%
Other Income 37 197 427.8%
Expenditure 2,054 4,694 128.5%
Operating Profit (EBDIT) 446 474 6.3%
Operating Profit Margin (%) 17.8% 9.2%  
Interest 41 172 320.0%
Depreciation 112 246 120.2%
Profit before Tax 331 254 -23.2%
Other Adjustments 0 31  
Tax 137 21 -84.9%
Profit after Tax/(Loss) 194 264 36.0%
Net profit margin (%) 7.8% 5.1%  
No. of Shares (eoy) (m) 12.9 32.6  
Diluted Earnings per share* 6.0 8.1  
P/E (at current price)   50  
*(annualised)      

The financials of the company are not comparable as Duracell (India) Ltd. and Wilkinson Sword India Ltd. has been amalgamated with the company effective from January 1, '00. As both these companies were operating in low value added products, Gillette's operating margins dropped significantly to 9.2% from 17.8% in the previous year.

Due to the merger, the company's raw material cost and other expenses as a % of sales increased considerably. On the other hand it has been successful in controlling staff cost and advertisement expenses.

Expenses as a % of sales FY00 FY01
Raw material cost 11.1% 18.3%
Trading purchase 38.8% 26.9%
Staff cost 6.2% 5.7%
Promotional expenses 8.5% 10.1%
Other expenses 19.3% 27.4%

Gillette is a leader in the Rs 5 bn Indian shaving blade market with a share of over 40% (in value terms). Its products are marketed under two main umbrella brands; 7 'O Clock and Gillette. Although these amalgamations (especially with Wilkinson) will help Gillette make inroads into the lower segment of the market, the bottomline and profit margins will remain depressed in the coming quarters since both the amalgamated companies are making marginal profits.

At the current market price of Rs 402, the stock is available at P/E of 50 times FY01 earnings with a market cpa to sales ratio of 2.5 times. Gillette is trading at the highest valuation (in P/E terms) among the FMCG stocks. Access to world-class technology and brands from the global leader in shaving product gives the company an edge over its competitors. Nevertheless, the business is still in the investment phase and short term outlook is not good.

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