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P&G to invest Rs 1,500 cr. in India to catch up with HUL
P & G Home Products, an Indian unit of Procter & Gamble, will borrow Rs 1,500 crore in the form of inter-company loan, the firm has said amid efforts to catch up with market leader Hindustan Unilever. The unlisted maker of Tide detergent and Pantene shampoo has passed a special resolution for the borrowing, which will be in addition to its paid-up capital and reserves, according to its annual filing with the Registrar of Companies last week.
The company did not specify the time frame for the borrowing or how it would be used. A spokesperson for P&G did not respond to ET's specific query on how the funds would be utilised, but said, "Inter-company borrowing is regular business practice where funds move between different divisions at different times. Since our Indian operations are spread across three different legal entities, it is routine to make updates on such plans to move funds within our own legal entities as per the Companies Act."
Analysts say the company would have to direct most of the funds to capacity expansion if it has to include more brands from the group's global portfolio. "Setting up more manufacturing units and expanding existing plants will be key for P&G if they want to launch more brands from its parent company," said Nitin Mathur, consumer research analyst at Espirito Santo Securities. P&G Home Products has already invested more than Rs 2,000 crore over the last two years to spruce up its existing factories and set up a new multi-product plant near Hyderabad.
The company's efforts at increasing local production are aimed at cutting dependence on costly imports. For instance, the company, which entered the toothpastes category six months ago, is dependent on China for most of its oral-care supplies. P&G is the world's largest consumer goods company by revenue. Despite clocking a CAGR of 25% in India in the last decade, it has been facing criticism for its increased spending in emerging markets at the cost of expansion in developed countries, which had been a cash cow for the global company.
The huge investment in India, in turn, has impacted its local profitability. P&G Home Products posted a loss of Rs 481.5 crore in 2012-13 - its third consecutive loss and the highest so far - as it engaged in a price war despite rising commodity costs. In contrast, the net profit of Unilever's local arm grew more than 40%. With a two-decade-long presence in India, P&G rakes in over a billion dollars in revenues through its subsidiaries - Procter & Gamble Health & Hygiene, Gillette India and Procter & Gamble Home Products. The group, however, has been slow in increasing its local market share in comparison with HUL. "While Tide and Olay gained share rapidly in the initial years after their launch, both brands seems to have plateaued now.
Even its latest brand Oral B hasn't made much impact with Colgate still gaining share every quarter," a senior analyst at a domestic brokerage house said, requesting anonymity. There are production issues, too. Last year, Delhi-based third-party manufacturer JHS Svendgaard took P&G to the competition watchdog when it did not renew an agreement to make its laundry brand Tide.
