Gillette: India Vs USA

A name synonymous to male grooming worldwide, the Gillette Company today is the global market leader, principally in the grooming and alkaline battery segment. It also has a decent presence in oral care business. In the more than 100 years since the company was founded, Gillette has gained, held and strengthened leadership positions globally. We decided to compare Gillette India with Gillette USA (Consolidated Worldwide) to get a perspective as to where does its Indian operations stand vis-à-vis the global parent.

Background

Gillette USA: A company founded in 1901, Gillette is the world leader in male grooming (Gillette, Sensor Excel, Mach range etc.), a category that includes blades, razors and shaving preparations, and in selected female grooming products, such as wet shaving products and hair removal devices. In addition, the company holds the number one position worldwide in alkaline batteries (Duracell) and in manual and power toothbrushes (Oral B). Gillette manufacturing operations are conducted at 31 facilities in 14 countries, and products are distributed in over 200 countries and territories.

Gillette India: Earlier known as Indian Shaving Products, the company's presence in India is over two decades old. The company was rechristened to Gillette India Limited in CY00, the same year in which it consolidated its Indian operations, by merging all existing businesses in India under a single fold. Gillette India is the 52% subsidiary of US shaving major - Gillette USA. The company's promoter groups' (including the Indian partners) together hold 88.8% in the company. The company hived off its battery manufacturing (Duracell and Geep) plant at Manesar in CY03 and is now a focused shaving product major, which also markets the Duracell range of batteries.

Despite being the 2nd most populous country in the world, India's contribution to the parent is negligible, a mere 1% in terms of revenues. In grooming, Gillette has a market share of above 75% in almost all countries where it has a presence in, except India and a few other third world countries while in some places like Latin America it is almost 90%.

Asian markets have grown at a rate of 12% from CY02 to CY04, but at the same time, Indian markets have shown a decline of 1%. The share of India to Asia-pacific revenues is low at 9.3%.

The Indian market has not been totally tapped and penetration levels are yet low for its flagship products. In India, the company is aiming to wean away consumers from the traditional double-edged razor segment to twin blade system through its mid-priced offering 'Vector Plus'. If successful, the company could achieve a new growth trajectory. Worldwide, the consumer Razor and blades sales have grown 31% in the past three years.

In terms of potential in India, nearly 90% of consumers' still use double-edged razors, a large part of which Gillette can convert. Slowly and steadily, times are changing with Indian men, beginning to place more emphasis on grooming and taking as much time as the fairer sex at the super market to pick up their favourite cologne, deodorant, aftershave lotion, shaving cream, body talc, face wash, shampoo, and conditioner.

Sales mix

The parent has a vast array of products including 5 US$ 1 bn plus brands. Unlike the parent's diverse folio mix, in India, Gillette sales primarily consist of its key brands 'Sensor Excel' and 'Mach 3' i.e. male grooming. Duracell, which holds the No.1 position worldwide in Alkaline batteries under performed badly in India, forcing the Indian counterpart to sell the factory to a worldwide subsidiary, and focus only on marketing the product.

India being a very price sensitive market has never been on the parents' priority list for new launches and products are made available only after considerable time. To put things into perspective, Mach3 turbo is trying to make an arrival in India, whereas worldwide M3Power an automatic version of Mach3 turbo is available in stores and in developed markets like US and Europe, M3Power Nitro a newer version of M3Power has already hit shelves.

P&G acquisition of Gillette

P&G recently acquired Gillette globally for US$ 56 bn. The combination will create a US$ 62 bn company - number two in the consumer products world behind Nestle in sales, and number one in market capitalization at nearly US$ 200 bn. The fit works just as well geographically, creating a good balance in sales across North America, Europe and the developing markets of Asia and Latin America.

Valuations

Gillette USA currently trades at US$ 52.75, a P/E multiple of 32 times its CY04 earnings and market cap to sales of 5x. On the other hand, Gillette India trades at Rs 660 that translates into a rich valuation of 35 times CY04 earnings. This is at the higher end of the spectrum in comparison to other stocks in the Indian FMCG space. Market cap to sales of its Indian operations is at 5.5x.

Although Gillette India just forms 1% of global revenues, the US parent will be looking to change that. The Indian operations have seen a major restructuring and cash infusion to continue on the path to profitability. With every 3rd person globally either an Indian or Chinese, Gillette can ill-afford to not focus on this geography. But progress will be a long drawn affair in this value conscious country. From the stock perspective, with nearly 90% stake in the hands of promoters', liquidity is an issue and the only thing keeping the valuations pepped up is hope of a good buyback offer in future.

Infosys, world's most valuable IT firm

Are Bangalore-based Infosys Technologies and Wipro Ltd, India's software bellwethers, the first and third most valuable software services companies in the world?

It would seem so.

Today, the $1.5 billion Infosys would be the costliest company to acquire even ahead of the $16 billion Accenture, the biggest consultancy and software solutions multinational.

Surprised? Don't be.

The EV or enterprise value of Infosys as on April 25, 2005 at $16.72 billion has nudged ahead of Accenture's, which had an enterprise value of $16.57 billion.

Infosys's market cap though at $17.41 billion is lower than that of Accenture's market capitalisation, which stands at $19.95 billion.

Also to understand how valuable Infosys is as a software company consider the enterprise values of other software companies, both Indian and global.

Bigger MNC competitors like EDS and Bearing Point have enterprise values of $10.27 billion and $1.40 billion, respectively. Another Indian IT major Wipro, with an enterprise value of $13.09 billion, is third after Infosys and Accenture in the most valuable software services companies list.

The enterprise value of a company is calculated by adding the total amount of long-term debt that the company is carrying on its balance sheet to the company's market capitalisation, whilst subtracting the value of cash and cash equivalents that are held by the company.

The enterprise value of a company also reflects the actual purchase price of the company if it were to be acquired without taking into account any premium or discount that may be offered at the time of sale.

With Infosys as a company carrying no debt on its balance sheet, it is but normal to expect a premium to be offered in case there is an offer to buy out India's most valuable software company.

Interestingly, the enterprise value of Infosys is higher than that of Accenture despite its most recent fourth quarter results that had disappointed market watchers and had also led to a fall in the Sensex.

Only IBM, which offers both products and software services -- and hence is not a pure play software consultancy and services player -- is more valuable than Infosys.

The $96 billion IBM dwarfs Infosys with an enterprise value of $135.92 billion and a market capitalisation of $121.16 billion.

Source : Rediff.com

Put your money where you shop

The retail sector will grow faster than the fastest growing sector in the country. But, in return, they sell at a premium. May be justifiably so.

More than a decade ago, shopping for clothes, perfumes, footwear and fashion jewellery - all under one roof - in Mumbai meant going to just one shop. Shopper's Stop in suburban Andheri.
Today, Shopper's Stop has six stores in Mumbai. Add to that an equally large number of competing stores like Pantaloon, Lifestyle and Westside.

Fast forward to 2010. There will be 600-odd malls across the country, constituting nearly 10 per cent of total retail sales. That is great news not just for shoppers but also for investors in stocks.

More here

Hindu Businessline Recommendations

Buy >> HCL Infosystems, India Glycols, Monsanto India

Reality Check

The indices gained yesterday. But it will not bring a sense of relief to investors who have been following the market goings on over the past couple of months. With equity markets globally in a state of dilemma, not much will change towards India overnight. But is it the end of the India story?

It is a known fact that most emerging markets and even key western markets have been on a slippery ground in recent times. With US consumer price index indicating a sign of inflationary pressure, US Fed chairman's strategy to control economic excesses in the world's largest economy is taking shape. It is a given that US rates are on their way up, only the speed and the quantum of the hikes is not really known.

If the rate hike is faster than anticipated, then FII flows could slow down, drying up liquidity in the emerging markets. However, in our view, despite the bonhomie, sustainability of growth of the US economy is still not really visible. And even if it was, there are too many worries it has created in the global investor's mind, which are unlikely to go away any time soon.

The pressure on the US economy over the past few years has been a blessing in disguise for other large emerging economies. In the past couple of years, global investors have really stepped out of their US horizon and looked at other regions. We believe that even if the US economy does sustain its current growth rate, the newer economies are unlikely to come in as an 'after thought' to global investors.

Sure, the next couple of months may be choppy, but longer term, the India story looks good. Even if India trudges along its usual 6%-6.5% GDP growth, that itself offers potential to equity investors to grow their capital, beating most other investing avenues. Though inflationary pressures are also evident in the economy, it is unlikely to be a very sharp rise in interest rates.

For India, FY06 has started on a good note. Structurally, VAT has been implemented, which has the capability to bring in cost efficiencies in the system over the longer term, despite early worries. Efforts are on to allow FDI in retailing and other sectors. Early indications are that the monsoon will be 'normal' this year. This again is a proven positive for the Indian economy. All in all, the benchmark indices at 13 times forward FY06 earnings, does not seem to be steep. Pick and choose!

Source : Equitymaster

Mangalam Drugs - IPO Analysis

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A pull-back rise possible

The Nifty is trading near its 200-daily exponential moving average that lies at 1908. Volatility can be expected around this level. The index can see a pull-back rise in the near term. In case of a pull-back the Nifty can test 1953-1960 levels, where it can faces resistance. On the downside the index is likely to test at 1894-1872 levels in the short term. The short-term bias remains Down till the resistance at 1970 holds on a closing basis.

On an intra-day basis if the Nifty manages to sustain above 1934, then we may see the index stretch to 1953. On the downside Nifty has support at 1916. If it breaks 1916, then we may see the index seeking lower levels in the vicinity of 1900. Satyam made a matching low at Rs364; on the upside the stock can test Rs386. Tisco has support at Rs352; on the upside the stock can pull back to Rs374. Reliance can pull back to Rs538-542 levels, where resistance can be expected. Infosys faces resistance at Rs1,976 above which the stock can test Rs2,006 levels.

Source : Sharekhan

i-flex, Infosys among top 10 Banking Solutions

Indian companies operating in the banking technology space are seen as a natural choice for banks across the world which wish to adopt advanced technology systems.

In a recent survey conducted by International Banking System (IBS), four Indian companies figure among the top 10 companies worldwide in the banking technology space.

According to the Annual Sales League released by IBS, the four Indian companies are i-flex Solutions (ranked at the top), Infosys (at fifth), InfrasoftTech (eighth) and Nucleus Software (10th).

Meanwhile, another study conducted by the Tower Group, which is an advisory research and consulting firm, points out that technology spending in the global banking industry is well on its way to increase by approximately 4% during the 2005 calendar year. Significantly, almost three-quarters of the spend will take place out of Europe and North America.

"Consumer banking will continue to represent the largest share in technology spending while wholesale banking will experience a steady recovery during the year," said Nasscom research head Sunil Mehta. Flexcube — an internet banking and e-finance platform from i-flex — has been ranked as the world's best universal banking solution for 2002 and 2003 by IBS. "Citigroup accounts for almost 38% of our aggregate revenue. Other top clients include the North Carolina Department of State Treasurer, Bharat Overseas Bank, IMF etc," said i-flex Solutions CEO and CFO Deepak Ghaisas. Infosys software product Finacle is used by approximately 84 banks worldwide. 3i Infotech is ranked 18th worldwide for banking technology products. "In fiscal 2004, our suite of banking software solutions contributed to about 8% of our total income," said 3i Infotech managing director and CEO V Srinivasan.

Rights, bonus, splits no more good news for stocks

38 of 45 scrips have declined after such Announcements

The shares of 38 companies, out of a total sample of 45, whose prices got adjusted for either bonus, rights or stock-splits between January and April 2005, have seen their prices decline sharply after the
respective adjustment.

A Business Standard Research Bureau study shows that out of the 45 stocks, 16 have declined between 20 per cent and 50 per cent, while 12 fell between 5 per cent and 20 percent. The scrip price of only seven companies firmed up after the adjustment, while ten scrips declined by
around five per cent each.

The shares of Interworld.com got adjusted for stock-split when the face value was reduced from Rs 10 to Re 1 per share on February 14, 2005. After adjusting for the stock-split, the stock price fell by a
big 50 per cent from ex-split price of Rs 3.35 on February 14, 2005 to Rs 1.70 on April 15.

Likewise, Doctors Biotech India's share price declined by 35.2 percent from ex-split price of Rs 8.50 on January 18 to Rs 5.51 on April 15. The stock was split, from Rs 10 per share to Re 1 per share.

Hitech Gears' shares, adjusted for a 1:1 bonus issue on March 16, has fallen by 27.4 per cent, from Rs 202.65 to Rs 147.05 now.

Similarly, the stock price of Aarti Industries, which gave a liberal bonus in the ratio of 2:1, went down by 27.1 per cent, from Rs 127.65 (ex-bonus) on February 9 to Rs 93.05 on April 15.

ING Vysya Bank's stock price also fell by 27 per cent from ex-rights price of Rs 200.05 on February 21 to Rs 146 now. The bank issued shares in the ratio of 3:1 at a premium of Rs 35 on a rights basis to existing shareholders.

Others in the category include: Karnataka Bank whose stock price has fallen 26 per cent, Ipca Laboratories (22.6 per cent), Vijay Textiles (21 per cent), Matrix Laboratories (17.2 per cent) and Gammon India (15.4 per cent).

The seven companies which bucked the trend include Vyapar Industries, whose shares appreciated 109 per cent after it became ex-bonus, Mercator Lines (ex-split prices up 20 per cent), G V Films (up 12.5 per cent ex-split), Hindustan Sanitaryware (up 5.7 per cent ex-bonus), Prraneta Industries (4 per cent ex-split) and Gujarat NRE Coke (1 per cent ex-bonus).

Source : Business Standard

Sharekhan Stock Update

Geometric Software Solutions 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs550
CMP: Rs485.00

 

Growing in double-digits 

 

Result highlights

• Geometric Software Solutions' overall results are in line with our expectations.
• The top line is up by 14.7% in rupee terms quarter on quarter (qoq). In dollar terms the same is up by 17.2%.
• The operating profit margin fell during the quarter but if we ignore the one-time expenses incurred during the period the same is largely in line with expectations.
• The company has given a robust growth guidance for FY2006: a growth of 45-50% in the top line in US Dollar terms and a similar growth at the net profit level.
• At the current market price the stock is quoting at 12.3x FY2006E earnings.
• We maintain our Buy call on the stock.

Result Dates

April 18

Teledata Informatics, Dhampur Sugar

April 19

Essel Propack , HCL Infosystems, Castrol India, Hexaware

April 20

Helios Matheson, Wockhardt, Infotech Enterprises, Aptech, Guj. Ambuja Cement, Sakthi Sugars, Uttam Galva Steel, Kopran

Equitymaster - Zee Telefilms - StockSelect

Equitymaster in their weekly StockSelect recommends a BUY on Zee Telefilms with a target of 190.

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Hindu Businessline Recommendations

Buy >> Aventis Pharma

Sell >> Hero Honda, Dr Reddy's Lab

3i Infotech Status

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Expect further weakness

The Nifty breached its recent low of 1970. On the downside the index could decline to 1930 or 1900. On the upside the Nifty faces resistance in the 1992-2004 range. Any intra-day bounce will face resistance around the 1992-2004 range and in the short-term the index could decline to 1900. Intra-day the Nifty faces a resistance at 1972 and on the downside it could decline to 1930. The intra-day bias is down as long as the Nifty stays below 1972.

Maruti faces a resistance at Rs412 and on the downside the stock could decline to the Rs398-390 range. SBI faces a resistance at Rs636 and on the downside the stock could decline to Rs605. Satyam could see intra-day weakness below Rs381. Intra-day Tata Motors is likely to test Rs403. A break below Rs403 is likely to see further weakness in the stock. The stock faces a resistance at Rs419.

Time : Short Term (Nifty)
Target : 1900
Trend : Down
Reversal : Up Above 2004
Support/Resistance : 1930/1952

Source : Sharekhan