Multi Baggers

Gillette India

Gillette India, formerly known as Indian Shaving Products, is an integral part of global FMGC giant P&G and is a leading player in the Indian shaving products and oral care market.

The company has a very sound portfolio of global brands comprising of:

1. Grooming and shaving products sold under Gillette, Mach3 Turbo, Vector Plus, Sensor Excel, 7`0 Clock and Wilkinson brands
2. Battery and flashlights sold under Duracell brand
3. Oral care products are marketed under Oral B brand

Company has also made its presence in the ladies personal care segment with the launch of Gillette Sensor Excel for women.

Besides the strong brand equity enjoyed by each of company’s products, its distribution channel is very wide-spread covering 1 lakh retail outlets across 3,600 cities and towns.

Although personal grooming segment accounts for major part of its revenue (70% of FY10 revenues), share of batteries and oral care segments has been increasing gradually, having posted a healthy 17% and 57% sales growth respectively, in FY10. Thanks to product innovation and aggressive marketing, all 3 segments have continued to post double-digit growth in H1FY11, thereby reducing share of personal grooming in total revenues to 65%.

The company has two manufacturing facilities at Bhiwadi in Rajasthan and at Baddi in Himachal Pradesh with installed capacity of 69 crore twin type shaving system and cartridges, and 134 crore safety razor blades. Its FY10 production stood at 23 crore twin type shaving system and cartridges, and 95 crore safety razor blades. Production of shaving brushes, toiletries, toothbrushes and batteries are outsourced by the company.

As of 31st December 2010, its equity stood at Rs 32.59 crore (FV 10) with promoters holding 88.73% stake, of which P&G held 73.53% (through P&G India Holdings, Wella India and 2 Gillette companies) while House of Podar Enterprises (HOPE) held 15.20%. Institutional holding stands quite low at just 1.48% while balance 9.78% stake is held by about 16,000 public shareholders.

The company, following July-June cycle for financial reporting, posted revenue of Rs 852 crore for FY10, with PAT of Rs 137 crore (PAT margin 16.1%), leading to full-year EPS of Rs 42. For H1FY11, sales showed a healthy rise to Rs 501 crore, backed by broad-based growth. However, PAT showed some contraction to Rs 63 crore (PAT margin 12.5%), mainly on account of additional advertisement and promotion undertaken by the company in Q2, to push its innovative and strategically-positioned ‘Gillette Mach 3’ razor at Rs 99 (from Rs 125 earlier) to attract a wider customer base.

Thus, the company has been introducing several measures on the category-side (one blade system offering comfortable shave at Re 1 introduced under Gillette Guard in Q2) as well as improving consumer proposition in the batteries segment to maintain the healthy growth rates in sales. The minor dent in Q2 profitability should not be too much of a concern.

As on 31-12-10, company’s networth stood at Rs 634 crore while it has cash balance of over Rs 100 crore to meet future requirements. It is a debt free company and has been paying healthy dividends since 1996, having paid 150% (Rs 15 per share) in FY10.

Given the shareholding pattern and financial performance, the company is a perfect candidate for delisting, pursuant to SEBI’s guidelines of 4th June 2010, announced on minimum public float of 25% for listed companies, to be achieved over 5 years (5% each year). Delisting of Gillette India, if and when undertaken, will happen at a significant premium to the ruling share price. Atlas Copco having recently seen its delisting process completed, is a case in point.
 
Current share price of Rs 1,670 indicates a PE multiple of around 35x, considering EPS of over Rs 45 for FY11. Share has limited downside from present levels, while it has tremendous potential to rise to over Rs 2,000 in the next 6 months, translating into a very favourable risk-reward ratio.