High Price for Safety

Procter & Gamble is likely to benefit from the low level of penetration of sanitary napkins in India…


If you are one of those brave souls who had gone out boldly investing into the BSE FMCG Index in January 2008 in the middle of the market crash, today you would have doubled your money - without too much risk in consumables, some would say. If you would have gone ahead and even more daringly put your money in P&G (the makers of Whisper sanitary napkins and Vicks) you would have made three times your money. That is the power of investing in tough times.
Today, P&G still looks like a young horse raring to go. Sales for the June 2012 quarter were up 28 per cent (y-o-y) primarily on the back of feminine hygiene products. What works for P&G and is likely to continue to work in the future is the low level of penetration of sanitary napkins in India - estimated at just 12 per cent.
New investors holding P&G should note that the company does not do any big bang product launches through its listed entity. All of P&G's blockbuster brands such as Ariel, Olay, Head and Shoulders, Oral-B, Pampers Pantene, Wella Kolestint and Tide are routed through its privately-held subsidiary in India. And the company has no intentions to change its policy. So, for the foreseeable future, P&GHH will remain a two-brand company of Whisper and Vicks. You need to configure this in your long term decision about the company.
P&G trades at 43 times its earnings which is significantly higher than its 10-year average. Chances of huge gains from current levels appear remote. However, till the global uncertainty prevails stocks like P&G will find favour.





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