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Household products spruce up Reckitt’s financials - Views on News from Equitymaster
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  • Aug 9, 2000

    Household products spruce up Reckitt’s financials

    The household cleaning products market in India is at nascent stage. The penetration at the all India level is a tiny 11.4%, represented predominantly by large metros, wherein the penetration is 47.2%. (In the rural areas the penetration is as lower at 4.3%).

    Household care covers a wide gamut of products, which can broadly be categorized as dish/ utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents etc. The use of these products is not very widespread in India. Most households use either low end products or ordinary detergents for the cleaning purpose. Even among the regular users of branded products, the usage is low and infrequent.

    Reckitt & Colman India (RCIL), the 51% subsidiary of Reckitt & Colman Plc is the market leader the household care products. The company also has products in the mosquito coils, shoe care, fabric care, lavatory care and anti-septic liquid segments. The company enjoys a dominant position in almost all the categories in which it has a presence and earns more than 85% of its revenues from brands which have become number one or number two in their respective category. In the past few years the company has consciously shifted its focus on becoming a leader in the households product market as can be evidenced from the change in the sales mix. Some of RCIL's leading brands are Lysol, Harpic, Mortein, Cherry Blossom, Robin Blue, Colin etc (Competition for these brands comes from HLL’s Domex, Sara Lee’s ‘Good Knight’ and Jyothi Laboratories’ ‘Ujala’.)

    Change in the sales mix in the past 5 years
    Products FY95 FY96 FY97 FY98 FY99
    Household products 31.3% 33.9% 40.4% 44.2% 52.9%
    Toiletries 21.3% 22.0% 23.0% 22.0% 21.2%
    Laundry products 17.0% 17.0% 15.7% 14.9% 11.5%
    Liquids 11.2% 10.3% 9.7% 9.5% 8.9%
    Tablets 5.5% 5.6% 5.4% 4.5% 2.7%
    Others 13.7% 11.2% 5.8% 4.9% 2.8%

    The company has consolidated its position in the household product segment by aggressive launch of new products and acquisition of new brands. It expects 30% of its turnover to come from new brands over the next 2-3 years. New products accounted for about 20% of the company's turnover in FY99 and are expected to increase to 30% FY00 respectively. RCIL plans to launch as many as 20 products in the next year leveraging on the huge brand equity of its leading brands.

    At the current market price of Rs 215, RCIL quotes at a P/E of 50 times its FY99 earnings with a market cap to sales ratio of 1.4 times. Considering the lower penetration in the household care market both in urban and rural areas, the growth opportunity for RCIL is huge. If the company is able to maintain the growth in its financials by introducing innovative products and initiating cost control measures, valuations are expected to improve further.



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