P&G Targeting Gillette Market Share in India

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We wrote last week about Procter & Gamble's ( PG ) CEO, Robert McDonald's, ambitious plan to acquire one billion additional consumers by 2014-15 by targeting the two most populous nations, China and India. It competes with Unilever ( UL ), Clorox ( CLX ), and Colgate-Palmolive Co. ( CL ) in the consumer products businesses and companies like L'Oreal ( LRLCY ), Avon (AVP) and Estee Lauder (EL) in the personal care and beauty segments that are also trying to push further into these markets.

One area where P&G has a clear advantage is in the grooming market with Gillette. Gillette accounts for around 17% of P&G's stock price by our estimates and is growing at a healthy clip. We currently have an $84 price estimate of Procter & Gamble's stock here, which is around 30% ahead of the market price.

Gillette's India Plan

P&G's male grooming products sold under the Gillette brand are relying heavily on India for growth. Over the last two years, P&G has gradually cut the price of its most popular Mack III Razor from close to $6 to less than $2 in the anticipation that replacement blade volumes, with significantly higher margins, will drive revenue growth. We currently forecast the market share to rise from 50% in 2010 to close to 55% in the coming years.

We completely rule out inorganic expansion through acquisitions in blades and razors products segment given Gillette's already significant market share leading to antitrust issues. If however, Gillette fails to gain volumes given its significant price premium over local competition, we foresee the market share remaining flat at current levels, leading to a 1.5% potential downside to our current Trefis price estimate of P&G's estimate.

While the EBITDA margins for Gillette have already declined over 2008-10 behind razors sold at highly discounted prices, we currently forecast EBITDA margins to rise gradually as consumers come back to buy blades. We currently estimate EBITDA margins will rise from 34.7% in 2010 to just under 36% in the coming years.  However, if volumes do not come as expected, we expect a decline in EBITDA Margins to 33.7% by 2016, resulting in another 1% potential downside to our current Trefis price estimate of P&G's stock.

P&G has shown a lot of confidence on the consumer markets in China and India and invested heavily in terms of customized products offering and an extensive distribution network. We estimate that if the investments do not reap the expected benefits, P&G's stand to lose over 7% of its current $84 Trefis price estimate of its stock price from only the laundry and male grooming products segments.

You can see our detailed $84 Trefis price estimate of Procter & Gamble's stock here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CL , CLX , LRLCY , PG , UL

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