X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Subsidiary concerns cloud valuations... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 2, 2001

    Subsidiary concerns cloud valuations...

    A large part of the Indian fast moving consumer goods (FMCG) landscape is filled with companies vying for a plethora of product categories. Expanding product portfolios is an inherent strategy of the FMCG companies in India and all over the world. The aim has always been garner a great share of the consumer pie.

    But in this entire milieu of brands, one company decided to take a different route. The company is Procter and Gamble Hygiene and Healthcare (PGHH), a 65 percent subsidiary of the US$ 38 billion FMCG major Procter & Gamble, USA. The Indian subsidiary despite being a focused two-product company has been successful in generating topline growth through price increases. It is the market leader in the anti-cold healthcare (Vicks) segment and feminine care (Whisper sanitary napkins). While the companys revenues grew at a compounded annual growth rate of 10 percent in the past 5 years, profits showed an encouraging growth rate of 25 percent. PGHH being the least cost producer of Vicks Vaporub among P&G facilities worldwide is also the sourcing base for all P&G subsidiaries in Asia.

    The company realised early on that it could not match the distribution strengths which compatriot Hindustan Lever (HLL) possessed. Therefore the company truncated its distribution network and signed a distribution agreement with Marico for Clearasil, Old Spice, Camay range of soaps and Ariel detergent bar. To lend focus to its business, PGHH consciously decided to be present only in two products viz. Anti-cold (Vicks) and feminine care (Whisper). Thus it exited from the shampoo segment by selling Mediker (anti-lice shampoo) to Marico Industries for Rs 100 million (US$ 2 million) in 1999. PGHH also terminated its manufacturing agreement for shampoos with P&G Home Products, its parents' 100 percent subsidiary.

    Margin advantage
    OPM (%) NPM (%)
    P&G 26.8 18.4
    HLL 12.9 11.5
    Colgate 7.5 4.9
    Gillette 9.2 4.5
    Reckitt 6.2 3.6
    * OPM = Operating profit margin
    * NPM = Net profit margin

    However, the going is not all that smooth. PGHH's strategy has revolved around premium positioning of both its product categories. In a sense, the company has been focusing on margins (value) rather than volumes. But PGHHs topline growth in the last two years slowed down to a single digit due to stiff competition in the markets from low priced packs. The unorganised sector also gave a tough time to the company. Apart from the competition, the slowing market growth has also worried investors. The anti-cold healthcare segment registered a marginal 1.5 percent overall sales growth in 2000, with Vicks maintaining a 40 percent hold on this segment. But in sanitary napkins segment, Whisper continues to be the market leader with a 50 percent share despite the onslaught of cheaper products from competitors like Johnson and Johnson and HLL. Sales in this segment registered a 2 percent growth during fiscal year 2000.

    Its strategy of focusing on premium segment of the market has however, led to a continuous improvement in its operating margins (26.8 percent in nine month period ended March 2001), which are among the highest in the FMCG industry.

    Given PGHHs clear strategy on focusing on two products, as also its premium positioning, the company is better placed than most FMCG companies to clock double-digit growth figures both in its topline and bottomline in the medium term. In the long term however, PGHH's two-product focus might become a bane as competition picks up. To keep competition at bay, the company will have to keep increasing its ad spends, which in the long term may strain its profitability. In 1999, PGHHs advertisement expenditure as a percentage of turnover was 6.7 percent. In 2000, it increased to 9 percent. This has put pressure on the companys margins. There are also concerns regarding its parent's two 100 percent subsidiaries in India.

    Due to the above reasons PGHH has been accorded lower valuations compared to its peers in the industry. Its market cap to sales ratio of 2.5 times is however, in line with other companies.

    However, there is a silver lining for this company. PGHHs US based parent has identified India among the top three markets in the world in the healthcare segment. This will help PGHH get more research and an expanded product line in the healthcare segment from its parent and hopefully would also help de-risk its business.

     

     

    Equitymaster requests your view! Post a comment on "Subsidiary concerns cloud valuations...". Click here!

      
     

    More Views on News

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    P&G: Strong Core Performance (Quarterly Results Update - Detailed)

    Oct 5, 2016

    Procter & Gamble Hygiene and Health Care reported a 0.1% YoY growth in sales and a 2.2% YoY increase in net profits during the quarter ended June 2016.

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: A Stable Quarter (Quarterly Results Update - Detailed)

    May 6, 2016

    Procter & Gamble Hygiene and Health Care reported an 11% YoY increase in revenues, while profits rose by 12% YoY during the quarter.

    P&G: Margins Go Through the Roof (Quarterly Results Update - Detailed)

    Feb 9, 2016

    Procter & Gamble Hygiene and Health Care reported an 11% YoY increase in revenues, while profits rose by 62% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    P&G HYGIENE SHARE PRICE


    Aug 16, 2017 (Close)

    TRACK P&G HYGIENE

    • Track your investment in P&G HYGIENE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    P&G HYGIENE 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE P&G HYGIENE WITH

    MARKET STATS