Financial Daily from THE HINDU group of publications
Saturday, Jan 29, 2005
Corporate - Mergers & Acquisitions
P&G may gain strength in marketshare war here
Chennai , Jan. 28
THE Procter & Gamble -Gillette deal could result in the former getting a significant boost both to its scale of operations and range of products in the Indian market. . This may strengthen P&G's hand in the ongoing war for market share with Unilever arms in the Asian markets, particularly with Hindustan Lever in India.
In India, P&G will continue to be a midget, in turnover terms, when compared to Hindustan Lever.
The two P&G subsidiaries in India (P&G Hygiene and P&G Home Products) today generate a combined turnover of about Rs 1,100 crore, just a tenth of Hindustan Lever's sales.
Gillette India's operations could add another Rs 400 crore to that number. But the acquisition of Gillette's operations will help P&G add scale at a quicker pace than that would have been possible through organic growth.
That Gillette's portfolio of shaving razors, gels, grooming products and toothbrushes have no overlap with that of P&G in India (shampoos, detergents, feminine hygiene, cold medication) is a positive.
For long, P&G's operations in India have been hamstrung by a limited array of products and brands.
The addition of Gillette's businesses could help P&G expand its portfolio and acquire a more extensive distribution network, a must-have in its competition against FMCG behemoths such as Hindustan Lever and Colgate.
The addition of Gillette's products to P&G's in India will also boost the latter's growth prospects, as male grooming products have much lower levels of penetration and offer greater potential for growth than do detergents, shampoos or cough and cold medication, which are more saturated markets.
With Gillette practically straddling the shaving systems market, competitive pressures are also less keenly felt in its business than in P&G's. Large-scale restructuring measures have also put Gillette India's financials on a stronger footing than was the case a couple of years ago, making it a more attractive acquisition candidate.
In fact, a merger between Gillette India and P&G's listed arm could significantly perk up the stock market valuation commanded by the latter. Due to its superior growth prospects, the Gillette India stock has historically traded at a much higher valuation (today at 37 times earnings), than P&G Hygiene's (22 times).
However, it would be premature to assume that the Indian shareholders in P&G's listed arm P&G Hygiene and Healthcare would benefit from this deal. With the listed company focusing on feminine hygiene products and cough and cold medication, Gillette India's portfolio of male grooming products may not be a comfortable fit. A consolidation with P&G's unlisted arm, which markets personal care products and detergents, appears more likely.
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