Indian Shaving Products – Inorganic growth to boost valuations
Among the FMCG companies, Indian Shaving Products (ISPL) enjoys a premium valuation due to its excellent quarter over quarter performance and distinct product quality.
Consolidation to drive revenue growth
With the merger of Duracell India and Wilkinson Swords, ISPL would be able to make inroads into the lower segment of the market. The company’s future appears positive as it has a strong presence in the fast growing segments such as flat-blades, toothbrushes and disposable twin blade razors. After the merger, ISPL is expected to get a better presence in both the lower-end flat blade segments with Wilkinson Sword brand and the disposable twin blade market with Wilman brand. To capitalise on the growing demand for its products, the company has plans to invest Rs 530 m. The proposed upgradation would be for the lower end blade segment. The mergers and the ongoing capacity expansion projects would enable the company to grow at a steady pace in future.
At the current market price of Rs 1,122, ISPL is trading at a P/E of 74 times its FY99 earnings. In the past the company has enjoyed P/E in the range of 100-120. ISPL has always enjoyed premium valuations amongst FMCG companies because of its excellent growth potential and unique nature of its products. It is said about ISPL's products that its future becomes brighter every morning as all those males who go to sleep, grow beards in the night!
The reason for its existing lower valuations is the recent merger with Duracell and Wilkinson. Profit margins of the company are expected to decline as a result of increasing costs. Also substantial promotional expenditure towards the launch of new products is likely to impact the operating profit margins.
Given the brand leadership and initiatives taken by ISPL for upgrading consumer habits, the company is well positioned to take advantage of the growing market for twin blades. Further new products and innovations in existing products are expected to drive ISPL's revenue growth in time to come.
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