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Overview of an Article in a Periodical

Submitted To: Dr. Poonam Shrama Submitted By: Jyoti Anand
PGFA1121 PGDM (G) A

Monday, August 27, 2012, Delhi, Page No.16 (MARKETS & FINANCE- mint money)

Article: P&G improves sales profitability in India

growth

and

India saw the highest growth among the BRIC countries for Procter and Gamble
Mark to Market | Ravi Ananthanarayanan

Procter and Gamble Co.s (P&G) listed subsidiaries in India have done well in the June quarter to support the companys 21% organic sales growth. Organic growth for P&G strips out the effect of foreign exchange and acquisitions on growth. India saw the highest growth among the BRIC (Brazil, Russia, India and China) countries for P&G, and much better than the 10% growth in its developing markets. It has two listed subsidiaries in India. Procter and Gamble Hygiene and Health Care Ltd sells Vicks and Whisper products in India, and its sales rose by 27.8% to Rs. 313 crore. Its material consumption cost rose by a lower figure of 15%, and advertising and promotion costs rose by only 2.5%, but royalty and other expenses rose substantially. Royalty as a percentage of sales rose by 19 basis points sequentially, while other expenses rose by 57% year-on-year (y-o-y). One basis point is one-hundredth of a percentage point. Still, lower material cost growth enabled P&G to easily cover the increase in expenses, and operating profit grew by 75.8% y-o-y to Rs. 44 crore. Net profit declined chiefly because of higher depreciation, lower other income and a Naveen Kumar Saini/Mint Tax write-back in the year-ago quarter. The company has not given a category-wise growth number in its statement, making it difficult to evaluate how these businesses have done. But the reported sales growth, and the 3.8 percentage point growth in operating profit margins, indicates it appears to be doing quite well. Gillette India Ltds performance was not as good, however, chiefly due to losses incurred in its oral care and battery business. The companys overall sales rose by 15%, driven by a healthy 20.4% growth in its shaving products business, but pulled down by single-digit growth in batteries and oral care. Its grooming business performance is encouraging, as segment profit has increased by 55%, a sign that the companys efforts to grow usage of twin-edge products and also upgrade users to higher-end products, are working. The batteries and oral care business have seen the company carry out aggressive marketing and pricing plans, which may have affected reported sales growth and margins. Reported profits have risen by 5.5 times, primarily due to sales growing ahead of material costs, and higher advertising costs in the year-ago quarter. Shareholders of both companies should be happy to see the healthy levels of sales growth that these companies are achieving. Profitability in both companies has improved, chiefly due to some relief on the material inflation front. P&Gs focus on developing markets, especially countries such as India, continues to be strong, and its poorer performance in developed markets will mean the emphasis on growth in developing markets will continue. Its Indian listed subsidiaries should do well in 2012-13 (year ended June), too, barring adverse trends in material costs or aggressive marketing plans that may affect margins.

Abridged Form of the Article:

The article states about the Cincinnati based Procter and Gambles sales growth in India is improving and that will be good news for the company as India is one of the emerging markets for the firm. The company has done well compared to the other rival firms in the country and the organic sales growth of P&G in India has been at 21% in the month of June. The companys excellent organic growth of the company will strip out the effect of foreign exchange and acquisitions on growth. As per the Procter and Gamble report they have seen the best growth in India, compared to other countries where they have their business like Brazil, Russia, and China. The company has performed 10% better in India than other BRIC countries and that is what allows them to experiment in Indian markets. The companys Vicks and Whisper sales in India rose by 27.8% to 313 crore. On the other hand, the companys material consumption cost also increased by 15% and advertisement and promotion cost moved up by 2.5% for the month of June. The companys entire business is hard to evaluate at the moment but they will make sure that they expand in India to get better profit in the future. This growth rate of the company has been achieved by it as their core marketing strengths are;

It is also worth noticing that no company in the world has invested more in market research than P&G. The company interacts with more than five million consumers each year in nearly 100 countries. It conducts over 20,000 research studies every year, and invests more than $400 million annually in consumer understanding. These insights help it in identifying opportunities for innovation and better serve and communicate with its consumers. Moreover, P&G is widely recognized as the industrys global innovation leader. Nearly all organic sales growth over the past decade has come from new brands or improved products. Globally and within India, the company is investing heavily in innovation, R&D and distribution. The strategy is to make several of its billion dollar brands more localized, accessible and affordable for consumers. In fact, Gillette's Himalaya team, a Boston-based group focused on India worked on a razor-and-blade innovation, simplifying the essential features and making it affordable through manufacturing innovations to attract lower-income savers. Also P&G is the brand-building leader of the industry. It has built the strongest portfolio of brands in the industry with 50 leadership brands that are among some of the worlds best-known household namesand which together make up 90% of P&Gs sales and more than 90% of profits. Twenty-four of these brands each generate more than $1 billion dollars in annual sales.

P&G Global Marketing & Brand-Building Officer Marc Pritchard explains how the Company is using purpose-driven brand building and creative innovation to thrive even in uncertain economic conditions. Pritchard introduces and discusses several commercials for P&G brands, illustrating the Companys core marketing strategy: that by improving peoples lives; P&G can do well by doing well. He tells that the companys main purpose is to touch and improve life of their customers. For having more insight about this, following link can be referred; http://www.youtube.com/watch?v=BANpF-6ybuY Why P&G in India is performing so well? India is now an investment hub. Consumers Goods industry is least affected by the macro economic factors or downturns in an economy. Consumers have to buy necessary healthcare products even in the scenario of inflation. In such a condition any company which wants to be the top priority of a customer needs to work upon its brand building, relationship building and appropriate marketing strategy, otherwise consumers can move for other lower price products. But the company blamed inflation for high cost and growth came at the cost of profitability as P&G slashed prices to below-cost levels, upped ad spends, unleashed price wars on rivals, all to increase market share. This also coincided with a sharp increase in prices of commodities. So, P&G can no longer afford to put volumes before margins in India. It will have to rationalize competitive intensity and take price increases wherever necessary. P & G has improved its sales in India through its subsidiaries Procter and Gamble Hygiene and Health Care Ltd and Gillette India Ltd. Though, it has increased royalty and other expenses as well as net profit declined due to high depreciation, low other income and tax written off, lower material cost has overshadowed this increase and operating profit has increased which indicates favorable performance of P&G. It is following aggressive marketing and pricing plans which has affected reported sales growth. P&G is getting aggressive with both horizontal and vertical plans of extending its reach as it has a mandate to deliver consumers numbers to its shareholders. Though it is the market leader in categories like anti-cold balms, feminine products and anti-ageing creams, none of these offer huge markets. It needs to catch up with players like Colgate or HUL in segments like soaps, toothpaste or shampoo. For instance, P&G has a 26% market share in shampoos, 10% in detergents and 35% in anti-aging creams. Competitor Hindustan Unilever or HUL, Indias biggest FMCG player, has 46% share in shampoos, 35% in detergents and 16% in anti-ageing creams. In terms of revenues, HUL crossed $4 billion (`22,987 crore) in fiscal 2012, while both Dabur and Godrej clocked in excess of $1 billion. Moreover, it has realized that it needs lower-end products to complement premium brands. Like its own strategy in the case of Gillette, where it has introduced low-priced products, it must go beyond premium brands like Ariel as rural and semi-urban markets are growing faster than urban ones. P&G will need to invest in higher profitability categories like skin care and oral care, after establishing itself sizeable market shares in detergents and shampoos over time. It should also continue to build distribution scale, having expanded across rural and urban India. For, although industry estimates suggest that P&G India has a direct reach to about 1.5 million outlets, rival HUL enjoys the largest reach (2 million outlets directly and 7 million outlets indirectly). P&Gs latest cash infusion will thus be used to grow what it calls the 2-3-4 strategy, which is to double its the number of Indian consumers for its products, triple their spend on P&G products, and quadruple its turnover. If it does that, by 2015, it will be close to HULs size today. But who knows where HUL will be then!!!