CMP: Rs. 2116.55; Buy at current levels and Accumulate at every dips.
Medium to Long term Target – Rs. 2500; STOP LOSS – Rs. 1947.22; Market Cap: Rs. 6,896.82 Cr; 52 Week High/Low: Rs. 2600.00 / Rs. 1849.95.
Medium to Long term Target – Rs. 2500; STOP LOSS – Rs. 1947.22; Market Cap: Rs. 6,896.82 Cr; 52 Week High/Low: Rs. 2600.00 / Rs. 1849.95.
Total Shares: 3,25,85,217 shares; Promoters : 2,89,21,489 shares – 88.76 %; Total Public holding : 36,63,728 shares – 11.24 %; Book Value: Rs. 216.79; Face Value: Rs. 10.00; EPS: Rs. 26.75; Dividend: 150.00% ; P/E: 79.12 times; Ind P/E: 39.77; EV/EBITDA: 40.01.
Total Debt: ZERO Cr; Enterprise Value: Rs. 6,784.89 Cr.
GILLETTE INDIA LTD: GILLETTE was incorporated in 1984 was originally incorporated on 9 February at Rajasthan, and in 2006 it shifted its base to Mumbai, India. The company was jointly promoted by House of Poddar Enterprise (HOPE) and Gillette Company, U.S.A (Gillette). The company was formerly known as Indian Shaving Products Limited, and is now a subsidiary of Procter & Gamble India Holdings B.V. Gillette India Ltd is a Fast Moving Consumer Goods company. The Company manufactures stainless steel razor blades. The company offered 19,49,600 shares at par to the general public on Oct of 1985. In 1991, the company issued 19,31,800 equity shares of Rs. 10 each at a premium of Rs. 110 per share to Gillette USA and the company was granted the permission to use the brand name GILLETTE this enabled company to achieve higher sales and brought company to the path of profit growth. Gillette India Limited offers personal grooming, oral care, and portable power products in India and internationally. It provides personal grooming products, such as blades, razors, and toiletries under the Gillette brand; oral care products, including tooth brushes and other oral care products under the Oral-B brand; and portable power products comprising batteries under the Duracell brand. Its products include razors and cartridges, twin type shaving system and cartridges, blades, single edge blade sets, safety razor blades, tooth brushes and batteries. The Company operates in three segments: Grooming - which include blades, razors and toiletries; Portable Power -which include batteries and Oral Care - which include tooth brushes and oral care products. Mach3 is its blades and razors brand. The personal care category of the male grooming business includes pre-shave/post-shave products (shaving cream and gel) and deodorants. As of March 31, 2013, it had two manufacturing plants in Rajasthan and Himachal Pradesh, India. Gillette India’s subsidiaries include Sabre Pens Ltd, Sheen Dental Products ltd, Klosershav products Ltd and Vanity Cosmetic ltd and Wella India Haircosmetics Private Ltd formerly known as Gillette Group India Private Ltd and is also an investing company. GILLETTE INDIA LTD is locally compared with Emami Ltd. JHS Svendgarrd Laboratories Ltd, Marico Ltd, Farmax India Ltd, Goderaj Consumer Products Ltd, Dabur India Ltd, Bajaj Corp Ltd, Amar Remedies, Colgate Palmolive, P&G, and Globally with Avon Products of USA, Revlon Inc of USA, Prestige Brands Holdings Korea Kolmr Co Ltd of south korea and Kenkou Corporation Incorporated of japan.
Investment Rationale:
The Indian FMCG sector is ranked fourth largest in the Indian economy and has a market size of $1,310 Cr. The FMCG sector has attracted a large number of consumers in both the urban and rural sectors of India in the past few decades through better penetration and low-priced products. Various manufacturers of FMCG products are concentrating on increasing their sales volume due to the rising demand of the consumers. To be successful in this sector, the company must have major attributes like Innovative product, affordability and distribution. Large scale FMCG companies like Gillette have won the hearts of consumers by delivering high-end and innovative products at an affordable price. A large number of FMCG companies derive a significant proportion of their overall sales from outside the top few 100 towns/cities, which reflects the growing economic importance of India’s rural consumer base. Rural India accounts for close to one-third of the total consumption pie. Robust consumption in the rural economy is one of the key drivers of India’s sustained growth. FMCG companies are devising exclusive rural marketing strategies to tap the rural consumer base. The Blades & Razors sector is a huge category and represents a sizable growth opportunity for this company. According to market research data, the Blades and Razors market alone is estimated to be over Rs. 1400 Cr, and about 550 Cr units in size. The Oral Care category gives an unique opportunities and challenges in India. Manual toothbrushes are a key part of Oral Hygiene with opportunity for better penetration and trade-up and this continue to dominate the Oral Care market in India. According to market research data, the toothbrush market is estimated to be over Rs. 1200 Crs and growing at a rate of 10 % per year. The growing usage in the high and mid-range devices like toys and digital cameras and increase in purchasing power in India indicates a robust potential in the coming years for alkaline batteries and thus for Duracell one of the products offered by Gillette, would be benefited by this. The company’s net sales registered a 16.78 % increase and stood at a record Rs. 392.96 Cr from Rs. 336.49 Cr over the corresponding quarter last year. The company’s net profit registered a 20.04 % increase and stood at a record Rs. 16.47 Cr from Rs. 13.72 Cr over the corresponding quarter last year. Gillette India Ltd has recommended a dividend of Rs. 15 per Equity Share (Nominal Value of Rs. 10/- each), for the Financial Year ended June 30, 2013. The growth in the Company’s business was driven by the early pipeline sales from the launch of Oral-B Toothpaste, marketing. The launch expenses will begin in the quarter ending Sept. 2013. Net Sales and PAT of the company are expected to grow at a CAGR of 13 % & 10 % over 2012 to 2015E respectively.
Outlook and Valuation:
Gillette India – The Company was formerly known as Indian Shaving Products Limited promoted by Mr. Saroj K Poddar, in 1991 Gillette Company USA became Co-promoter in the company, later on in October 2005, Gillette Company USA was acquired worldwide through a merger by Procter & Gamble Company USA. Currently, in order to comply with SEBI’s minimum 25 % public shareholding, from 26 September 2013 onwards - the shareholding of Poddar Heritage Group agreed to be part of public shareholding subject to certain fulfillment of conditions as – 1) Poddar group shall have no special rights in Gillette India through any formal or informal arrangements other than that of a normal public shareholder. 2) Entities belonging to Poddar group shall not hold any key management personnel position in Gillette India and other group companies, of Procter & Gamble through any formal or informal arrangements. 3) If any entities belonging to Poddar group prompters want to be classified as promoters of Gillette India again in future they shall be required to make an open offer and no exemption shall be given in this regard. 4) There shall no acquisition of shares of Gillette India by Poddar group for the period of one year from the date of reclassification of Poddar group as public shareholder. Currently, Poddar Heritage group holds 12.86 % of issued and paid up capital of Gillette India and is co-promoter with P&G which holds 75.90 %. The said arrangement will mean that there will be complete termination of prior agreements between P&G and Poddar Heritage Group in relation to Gillette India. In order to pare down the stake of the Poddar Heritage group to less than 5 % in the company, they would have to undertake an OFS of 8.77 % i.e. 7.87 % by Poddar and 0.90 % by P&G instead of 6.90 %, this means that there will be an OFS of around 25,36,415 shares. Poddars have agreed to the said proposal, post agreement Poddar's will held 4.99 % and P&G will hold 75 % in Gillette India. For the termination of the shareholder agreement with P&G, P&G will directly pay the Poddars the severance package as compensation (amount not known) and this payment will not be from Gillette India - this should be seen as positive. The OFS will increase the free float factor of the stock by 0.10 to 0.25 post OFS, the OFS could be for around Rs. 600-700 Cr, and the public holding could be of 62,20,143 shares or 19.02 plus the 4.99 % of Poddar now as public share holder. At the current market price of Rs. 2116.55, the stock P/E ratio is at 75.18 x FY14E and 68.58 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 28.15 and Rs. 30.86 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13 % and 10 % over 2012 to 2015E respectively. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. Gillette India could be good buy for the target price of Rs. 2500 for Medium to Long term investment.
| KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
|---|---|---|---|---|
| SALES (₹ Crs) | 1,232.90 | 1,437.72 | 1,639.00 | 1,791.42 |
| NET PROFIT (₹ Cr) | 75.73 | 87.16 | 91.73 | 100.58 |
| EPS (₹) | 23.24 | 26.74 | 28.15 | 30.86 |
| PE (x) | 89.90 | 78.11 | 74.21 | 67.68 |
| P/BV (x) | 10.99 | 10.49 | 10.01 | 9.60 |
| EV/EBITDA (x) | 48.31 | 40.14 | 37.54 | 34.13 |
| ROE (%) | 9.10 | 6.90 | 11.80 | 12.90 |
| ROCE (%) | 26.62 | 30.95 | 31.91 | 33.92 |
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