Shares of Procter & Gamble India's two listed consumer goods entities, which contribute just 2% to its global revenue, were little changed on Monday as analysts found the first-ever analysts meet lacking in aggression.
"While a sizable player, the focus seems to have been lower in the past decade, given the prioritisation of the U.S.," said Jefferies in a note.
While P&G has been an aggressor at different points in the last 20 years, the maiden meeting "does not point to renewed aggression, at least as yet", the brokerage said.
The company, while addressing the media separately for Procter & Gamble Hygiene & Health Care Ltd. and Gillette India Ltd. on Friday, highlighted India as a growth market. It also sounded optimistic about margin-led growth in the medium term, with a recovery likely to take at least three to four more quarters.
Distribution expansion, premiumisation and new launches are the key drivers. "However, the renewed growth ambitions through initiatives such as distribution expansion, new categories etc. need to be monitored, given P&G's history of aggressive price wars in India, although at this stage, this does not seem to be the case," Jefferies said.
P&G has seen modest growth in India—although broadly in line with the sector—at 10% compound annual growth rate in the last five years, the brokerage said.
P&G operates its India fast-moving consumer goods business through three entities: P&G Hygiene (feminine hygiene and Vicks), Gillette India (grooming and oral care) and P&G Home Products (detergents, baby care, hair care and air care).
The combined revenue stands at Rs 15,000 crore, making it the second largest home and personal care player after Hindustan Unilever Ltd.
P&G Hygiene holds over 50% market share in both feminine care and health care categories. However, the market in which the company deals is still underpenetrated, offering ample opportunities for growth, the management said. It expects mid-single-digit volume growth over the next four to five years.
In terms of value, the management has guided double-digit topline growth. It expects that bottom-line growth will outpace top-line growth.
However, the company warned of a near-term risk to the revival of rural demand due to a sequential increase in retail inflation and unpredictable weather conditions.
The unlisted P&G Home Products is a competitor for several coverage companies, while PGHH competes with Colgate in oral care. "Competition from P&G has been manageable in the last few years," said Jefferies.
Apart from these three companies, the group has another listed entity, P&G Health Ltd., which is in the healthcare and supplements space. The management said that the current structure with multiple entities has worked well for the group in the past decade, and there are no plans for unification.
Shares of Procter & Gamble Hygiene and Health Care Ltd. were down 0.27% at Rs 17,706 apiece, while those of Gillette India Ltd. were up 0.14% at Rs 5,994 per share at 11:55 a.m. This compares with a 0.2% decline in the benchmark Nifty 50.
The shares of P&G Hygiene rose 23.96% year-to-date, while those of Gillette India rose 19.59%.
Some more brokerage views:
Motilal Oswal On P&G Hygiene
Maintains a 'neutral' rating with a target price of Rs 16,940 per share, implying a potential downside of 4%.
No material changes to earnings per share estimates, considering the volatility in ad spends and potential delays in gross margin recovery due to increased inventory levels, all amid fluctuations in pulp and oil costs.
P&G Hygiene can be an attractive long-term core holding because of (a) a substantial growth potential within the feminine hygiene segment that can lead to market share gains, aided by competitive advantages that the company is continuously strengthening, and (b) the potential for increased profitability through premiumisation.
Nevertheless, the uncertain pace of sales and earnings recovery and expensive valuations led to the neutral rating.
Nirmal Bang On Gillette India
Maintains 'buy' with a target price of Rs 6,880 apiece, implying a potential upside of 15%.
Made no changes in estimates post the analyst meet.
Return of capital employed has always been healthy, and dividend payouts have been increasing in recent years.
The growth in topline and earnings, which was lacking, seems to have revived over the past few years.
Valuation is inexpensive at 42 times FY25E EPS (despite a 30% run-up in the stock since June 2023), especially if the double-digit earnings growth of the past two years can be sustained.
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