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Indian Shaving: Commanding premium position

Aug 21, 2000

Indian Shaving Product Ltd. (ISPL) has completed its restructuring process by amalgamating Gillette group companies Wilkinson Sword and Duracell India with the company. ISPLís topline is expected to receive a major boost in the current year. But the bottomline and profit margins will remain depressed since both the amalgamated companies are making meager profits. Nevertheless ISPL has been enjoying premium valuation on the bourses compared to other FMCG companies. One of the factors contributing to this premium is the access the company has to its parentís new products. This has allowed the company to create a niche for itself over the years in the Indian shaving products market.

ISPL is a significant player in the Rs 5 bn Indian shaving blade market. This is expected to grow at the rate of 15% per annum over the next 5 years. It has over 40% value market share in the shaving products business. Its shaving products are marketed under two main umbrella brands 7 'O Clock and Gillette. It's products are positioned in the upper end of the market and command a price premium over that of the competitors.

The merger would help ISPL to make inroads into the lower segment of the market. After the merger, the company should get a better presence in both the lower-end flat-blade segments (Wilkinson Sword brand) and the disposable twin-blade market (Wilman brand).

ISPL has diversified its product portfolio by entering into other areas like shaving brushes, shaving preparations, electric hair epilators, batteries and oral care products. Safety razor blades, which accounted for 65% of ISPL's sales three years ago, today account for only 25% of total turnover. Turnover from traded products on the other hand has risen from 0.3% in FY96 to 50% in FY99 with increasing number of products being imported and marketed by the company.

The company frequently launches new products to boost topline growth. It has successfully launched the Mach 3 shaving system in India in January 2000 through its 1,800 distributors. Internationally Mach 3 is established as the successful product since 1998. Globally it is sold at a premium of 35-65% over Gillette Sensor Excel. Since ISPL aims to be a leader in value terms rather than in volume terms, Mach 3 in India commands a 40% premium over Sensor Excel.

ISPL attracts the highest valuation (in P/E terms) among FMCG stocks. Access to world-class technology and brands from the global leader in shaving product gives the company an edge over its competitors. The business is still in the investment phase, wherein the company is making huge investments in brand building and attempting to convert users from traditional to superior shaving systems. At the current market price of Rs 791 ISPL is available at P/E of 52 times its FY99 earnings.

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