Revenue growth of shaving products major, Gillette India, seems to be back on track. After reporting a staid 5% topline growth during the June quarter, the company is back to double digit growth at 16% YoY. However, operating margins took a toll on the company's profitability (down over 8% YoY). On a nine month basis, Gillette has reported nearly 13% topline and around 24% bottomline growth.
Operating profit (EBDITA)
EBDITA margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share (Rs)*
Price to earnings ratio (x)
*(annualised), CY = Calendar Year
What is the company’s business?
Gillette India is the 52% subsidiary of US shaving major - Gillette USA. The company's promoter group together hold 88.8% in the company, leaving very little liquidity for the public. The company has just come back into the black in 2003 after a spate of restructuring in 2001 and 2002. These years saw Gillette hive off its battery manufacturing plant (Duracell) at Manesar. The period also saw cash infusion from the parent, which helped it restructure and pay of all its debt. It is now a focused shaving products major, which also markets the Duracell range of batteries.
What has driven performance in 3QCY04?
Sales: Though we have not received the company's detailed segmental performance break up, we believe a chunk of the revenue growth has been driven by the mid priced offering 'Vector Plus' and its oral care business (Oral B). The company has been pushing the 'Vector Plus' brand aggressively since its launch in early 2004. Just to put things in perspective, till the first half of 2004, the company's grooming business grew by nearly 12% YoY. But the key growth driver during this period was its oral care business, which clocked a strong 32% revenue growth. We believe that this trend has continued for the oral care business and the 'Vector Plus' push too has aided growth.
as a % of net sales
Advertising and sales promotion
Margins: The company's operating margins took over 800 basis points hit during the quarter. The key reason for this erosion in margins was a sharp increase in the company's ad spends. The company's advertising expenses as a percentage of sales almost doubled YoY to 18.1% during the September quarter. It indicates the push the company is trying to give its products, especially Vector Plus. This push has reflected in the company's topline growth, but has impacted profitability.
Over the last five quarters…
Sales growth (YoY)
Advertising to sales (%)
Net profit growth (YoY)
*4QCY03 profit stood at Rs 9 m, as compared to (33 m) loss in 4QCY02
As is clear from the above table, the company has done much better in terms of revenue growth in 2004 so far. However, its advertising expenses to revenues ratio has constantly seen an uptick during the three quarters of 2004. Consequently, operating margins of the company have continued to see a fall. The company's largely single product focus is a key reason for this trend (shaving products business in nearly 79% of revenues).
What to expect?
At Rs 598, the Gillette stock trades at a rich valuation of 26.9 times annualised 9mCY04 earnings and market cap. to sales of 4.8x. These valuations are in anticipation of continued high growth. Though the long term potential for Gillette products is enthusing, but clearly, the pressure on operating margins is likely to continue. Low liquidity in the stock could also be an indication that the management may take the company private. In such a scenario, there is not much for the retail investor to look forward to.
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407