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Gillette: India Vs USA - Views on News from Equitymaster
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Gillette: India Vs USA
Apr 18, 2005

A name synonymous to male grooming worldwide, the Gillette Company today is the global market leader, principally in the grooming and alkaline battery segment. It also has a decent presence in oral care business. In the more than 100 years since the company was founded, Gillette has gained, held and strengthened leadership positions globally. We decided to compare Gillette India with Gillette USA (Consolidated Worldwide) to get a perspective as to where does its Indian operations stand vis-à-vis the global parent.

Background
Gillette USA: A company founded in 1901, Gillette is the world leader in male grooming (Gillette, Sensor Excel, Mach range etc.), a category that includes blades, razors and shaving preparations, and in selected female grooming products, such as wet shaving products and hair removal devices. In addition, the company holds the number one position worldwide in alkaline batteries (Duracell) and in manual and power toothbrushes (Oral B). Gillette manufacturing operations are conducted at 31 facilities in 14 countries, and products are distributed in over 200 countries and territories.

Gillette India: Earlier known as Indian Shaving Products, the company’s presence in India is over two decades old. The company was rechristened to Gillette India Limited in CY00, the same year in which it consolidated its Indian operations, by merging all existing businesses in India under a single fold. Gillette India is the 52% subsidiary of US shaving major - Gillette USA. The company's promoter groups’ (including the Indian partners) together hold 88.8% in the company. The company hived off its battery manufacturing (Duracell and Geep) plant at Manesar in CY03 and is now a focused shaving product major, which also markets the Duracell range of batteries.

Comparative revenue snapshot…
Gillette USA Gillette India
(US$m) CY02 CY03 CY04 CAGR CY02 CY03 CY04 CAGR
Net sales 8,453 9,252 10,477 11.3% 96 94 94 -1.0%
Expenditure 6,644 7,249 8,012 9.8% 75 69 69 -4.1%
EBITDA 1,809 2,003 2,465 16.7% 21 25 25 9.6%
Operating margin % 21.4% 21.6% 23.5%   21.9% 26.6% 26.8%  
Net profit after Tax(Loss) 1,216 1,385 1,691 17.9% 1 10 14 206.8%
Net profit margin % 14.4% 15.0% 16.1%   1.5% 10.6% 14.4%  
*Conversion at US$ 1 = Rs 45

Despite being the 2nd most populous country in the world, India’s contribution to the parent is negligible, a mere 1% in terms of revenues. In grooming, Gillette has a market share of above 75% in almost all countries where it has a presence in, except India and a few other third world countries while in some places like Latin America it is almost 90%.

(US$m) 2002 2003 2004 % Sales in CY04 CAGR
North America 3,519 3,708 3,966 37.9% 6%
Europe 2,604 3,048 3,542 33.8% 17%
AMEE 804 894 1,175 11.2% 21%
Asia-Pacific 814 918 1,015 9.7% 12%
Latin America 712 684 779 7.4% 5%
TOTAL 8,453 9,252 10,477   11%
Asian markets have grown at a rate of 12% from CY02 to CY04, but at the same time, Indian markets have shown a decline of 1%. The share of India to Asia-pacific revenues is low at 9.3%.

The Indian market has not been totally tapped and penetration levels are yet low for its flagship products. In India, the company is aiming to wean away consumers from the traditional double-edged razor segment to twin blade system through its mid-priced offering 'Vector Plus'. If successful, the company could achieve a new growth trajectory. Worldwide, the consumer Razor and blades sales have grown 31% in the past three years.

In terms of potential in India, nearly 90% of consumers’ still use double-edged razors, a large part of which Gillette can convert. Slowly and steadily, times are changing with Indian men, beginning to place more emphasis on grooming and taking as much time as the fairer sex at the super market to pick up their favourite cologne, deodorant, aftershave lotion, shaving cream, body talc, face wash, shampoo, and conditioner.

Sales mix
The parent has a vast array of products including 5 US$ 1 bn plus brands. Unlike the parent’s diverse folio mix, in India, Gillette sales primarily consist of its key brands 'Sensor Excel' and 'Mach 3' i.e. male grooming. Duracell, which holds the No.1 position worldwide in Alkaline batteries under performed badly in India, forcing the Indian counterpart to sell the factory to a worldwide subsidiary, and focus only on marketing the product.

India being a very price sensitive market has never been on the parents’ priority list for new launches and products are made available only after considerable time. To put things into perspective, Mach3 turbo is trying to make an arrival in India, whereas worldwide M3Power an automatic version of Mach3 turbo is available in stores and in developed markets like US and Europe, M3Power Nitro a newer version of M3Power has already hit shelves.

P&G acquisition of Gillette
P&G recently acquired Gillette globally for US$ 56 bn. The combination will create a US$ 62 bn company - number two in the consumer products world behind Nestle in sales, and number one in market capitalization at nearly US$ 200 bn. The fit works just as well geographically, creating a good balance in sales across North America, Europe and the developing markets of Asia and Latin America.

Valuations
Gillette USA currently trades at US$ 52.75, a P/E multiple of 32 times its CY04 earnings and market cap to sales of 5x. On the other hand, Gillette India trades at Rs 660 that translates into a rich valuation of 35 times CY04 earnings. This is at the higher end of the spectrum in comparison to other stocks in the Indian FMCG space. Market cap to sales of its Indian operations is at 5.5x.

Although Gillette India just forms 1% of global revenues, the US parent will be looking to change that. The Indian operations have seen a major restructuring and cash infusion to continue on the path to profitability. With every 3rd person globally either an Indian or Chinese, Gillette can ill-afford to not focus on this geography. But progress will be a long drawn affair in this value conscious country. From the stock perspective, with nearly 90% stake in the hands of promoters’, liquidity is an issue and the only thing keeping the valuations pepped up is hope of a good buyback offer in future.

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