X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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.
Unilever v/s Procter & Gamble: War of the Worlds - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Unilever v/s Procter & Gamble: War of the Worlds

Jul 4, 2013

Two FMCG companies, Unilever and Procter & Gamble (P&G) dominate the global consumer goods market. They have not remained untouched from the growing clout of the emerging economies. Going forward, what is their game plan to benefit from the rising importance of developing countries? In this article we delve on the efforts by these companies to raise their share in emerging economies, particularly in India.

A brief background

Internationally, P&G is a much bigger FMCG company having turnover of $ 83.7 bn as compared to turnover of $ 66.7 bn raked in by Unilever. Unilever had commenced operations almost a decade later than the former in 1885. Both of them market home care and personal care products. In case of P&G, these two product segments contribute a lion's share of 75% with the balance coming from over-the-counter healthcare products. For Unilever, home care and personal care account for 53% of sales and the rest 47% comes from foods and refreshments.



Even geographically, the two companies differ in their core markets. In case of Unilever a huge share of 55% of its sales comes from emerging economies. On the other hand, P&G derives a majority 62% of its overall sales from developed markets.

Both companies boast of strong brands. Unilever has brands such as Dove, Axe, Rexona, Vaseline, Lifebuoy, Lux, Ponds, Vaseline, Sunsilk, TRESemme, VO5, Clear, Surf, OMO, CIF, Domestos, Comfort, Lipton, Walls & Knorr. P&G is equipped with brands such as Head & Shoulder, Olay, Pantene, Wella Braun, Gillette, Mach 3, Crest, Oral-B, Ariel, Duracell, Gain, Tide and Pampers.

Financial performance

A look at the financial parameters clearly shows that P&G, backed by better operating leverage, enjoys higher profitability than Unilever. However, Unilever offers better shareholder's returns.

Financial performance
FY12/CY12 Unit HUL* Unilever P&G
Revenues US$ m 3,732 66,737 83,680
Operating cost US$ m 3,247 58,819 70,388
EBITDA US$ m 485 7,918 13,292
EBITDA margin % 13.0 11.9 15.9
Net profit US$ m 449 6,434 10,756
Net profit margin % 12.0 9.6 12.9
Return on equity % 76.6 31.5 16.8
Return on asset % 24.6 10.7 8.1
Debt to equity x 0.0 0.7 0.3
* Year ended March 2012 and year ending June 2012. For others, figures are for year ended December 2012
Source: Equitymaster Research, Company Annual Reports


Rising power of emerging economies

The onslaught of the global financial crisis in 2008 has led to moderation in consumer demand from developed countries. This development has adversely impacted P&G's topline growth as it still derives a bulk of its sales from the US and other developed markets. In FY12, the company's sales increased by a mere 1.5%.

Developing countries such as China, India and other Asian and African countries have managed to report healthy economic growth. Therefore these countries have been clocking robust growth in consumer goods sales.

For Unilever, emerging economies are already a big market. In CY12, Unilever's turnover increased by 10.5% crossing the $ 50 bn mark. This was achieved by underlying sales growth of 11.4% from emerging markets, even as slower sales from developed market pulled down the overall underlying sales growth to 6.9%.

Faced with slowdown in home markets, global FMCG companies have been vying with each other to raise their share of sales from emerging economies. Unilever wants to further raise the share of sales from emerging markets to 70-75% of turnover by 2020. The company is building 27-28 factories worldwide out of which barring two, all are in the developing economies. P&G wants to expand its sales share from emerging markets to 50% by 2025.

Market dynamics in India

In India, Unilever operates through its subsidiary Hindustan Unilever Ltd (HUL). Hindustan Unilever is the largest consumer goods company in the country with a presence in home care, personal care, foods and beverages. While the company is a market leader in most of the personal care and home care products, it has not gained much success in the foods portfolio. The company has increased focus on its personal care portfolio in the past five years through increased launches. The company has an additional advantage of strong rural reach and products straddling the price pyramid. Unilever is hiking stake in HUL from 52.5% to 75% through an open offer to capitalize on the huge untapped potential..

Procter & Gamble is present through three subsidiaries, Procter & Gamble Hygiene & Healthcare (PGHH), Gillette and Procter & Gamble Home Products (PGHP). Only the first two are listed subsidiaries with the largest one still remaining unlisted. PGHH sells feminine hygiene and healthcare products whereas Gillette markets men grooming products. The unlisted subsidiary, PGHP sells the bulk of personal care and home care products that compete with rival HUL's products. The combined turnover of the Indian business is over $ 1 bn which is around 1% to P&G's overall turnover.

P&G has planned a $1 bn investment plan for India over the next five years spread across capital and marketing investments. The company recently launched toothpaste under the Oral-B brand taking on established players such as Colgate and HUL.

Conclusion

The growing power of emerging economies is forcing a re-think in the strategy of global FMCG majors. Unilever, which has a higher share of its sales from developing countries, has been able to weather the global downturn much better as compared to larger peer P&G.

Both companies have now chalked out plans to expand their market share in the emerging markets. In India markets, Unilever has a formidable presence through strong distribution reach and with products across price points. In comparison, P&G's products are more premium. It remains to be seen, how the two companies battle out to increase their turf.

Madhu Gupta

Madhu Gupta (Research Analyst), ValuePro has a post graduate degree in both physics and finance. Having worked with India's leading economic research agency, she has a natural flair for numbers and analytics. She brings with her a near-decade long rich experience in the field of finance. A firm believer of the principles of value investing, she looks for robust businesses with durable competitive advantages.


Equitymaster requests your view! Post a comment on "Unilever v/s Procter & Gamble: War of the Worlds". Click here!

  

More Views on News

HUL at All Time High; BSE FMCG Index Up 0.9% (Market Updates)

Dec 17, 2018 | Updated on Dec 17, 2018

HUL share price has hit an all time high at Rs 1,870 (up 0.7%). The BSE FMCG Index is up by 0.9%. Among the top gainers in the BSE FMCG Index today are HUL (up 0.7%) and NESTLE (up 2.7%). The top losers include CCL PRODUCTS and BRITANNIA (down 0.2%).

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.

More Views on News

Most Popular

It's Almost the Perfect Time to Buy This Safe Stock(The 5 Minute Wrapup)

Dec 6, 2018

My latest StockSelect recommendation ticks all the boxes of a great safe stock.

Patel's Exit, Election Results, and 4 'Must Have' Small Caps in These Exceptional Times(Profit Hunter)

Dec 11, 2018

RBI Governor's resignation is a statement of dissent with the way government is handling the economy's affairs and could lead to some serious market correction. Here's how to make the most of it.

Players in an Oligopoly Should Have Financials Like This(Chart Of The Day)

Dec 7, 2018

This stock has corrected 30% from peak and looks attractive at these valuations.

Looking For Higher Interest Rates on Bank FDs? Read This!(Outside View)

Dec 5, 2018

Credit disbursement to the productive sectors of the economy such as infrastructure, engineering, food processing, textiles, and chemicals, among others is rising.

DSP Mutual Fund's Sale of DHFL Bonds: Here's What You Need to Know(Outside View)

Dec 5, 2018

PersonalFN explains the probable reason as to why the capital market regulator has initiated DSP Mutual Fund's bond sale that caused DHFL stock to crash.

More

Small Investments
BIG Returns

Zero To Millions Guide 2019
Get our special report, Zero To Millions
(2019 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE FMCG


Dec 17, 2018 01:53 PM

S&P BSE FMCG 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS