The Hindu Business Line : P&G Hygiene: Unlocking value through unit sell-off

THE Procter & Gamble Hygiene and Health Care (P&GHH) stock today ruled firm on expectations that hiving off its detergent manufacturing business to Procter & Gamble Home Products, an unlisted entity, will enhance shareholder's value.

The board of P&GHH today met and cleared the proposal for a total consideration of Rs 101 crore. However, the market did not come to know of the outcome till the session-end.

According to market analysts, two direct benefits would accrue to P&GHH through this deal. A consideration of Rs 101 crore would add to the revenues and clean its product portfolio of the low-margin detergent.

Of this Rs 101 crore, Rs 38 crore is towards tangible and intangible assets of the detergent manufacturing business and Rs 62 crore towards the value of the inventory of raw materials and finished goods which may vary according to the inventory on hand on the date of transfer.

"The transfer via sale will benefit P&GHH in three ways - reduce complexities, ensure that each company is focussed on growing its core categories and in effect, free up Rs 101 crore of cash for productive use in P&GHH's core business and for augmenting company's distributable profits," the company said in a news release quoting Mr Bharat Patel, Non Executive Chairman, P&GHH.

An industry insider said the company was focusing more on two high-margin items and their brands - sanitary napkins and throat lozenges as also the ointment. The market seems to factor in two more developments in the near future - first being the merger of Gillette India with it and launch of P&G's Crest toothpaste range.

"The company has seen fluctuating profit growth in the last few quarters. Though there was a substantial growth in the December 2004 quarter, the March quarter profits slipped substantially. Churning in the product portfolio may push the sales growth," said a fund manager. In terms of percentage, the growth in sales was among the strongest in the FMCG sector in the recent quarters.

"After the merger of Gillette with it, expected some time later in its new fiscal beginning July 2005, and restructuring of its existing business, things may take a dramatic turn," an analyst with an institutional broker said. The progress of monsoon this season is likely to brighten up prospects for enhanced sales growth in the 2005-06 (July-June) financial year, industry sources suggested.

The stock today finished at Rs 672.20, after touching the day's high at Rs 679, a rupee below the 52-week high of Rs 680 on the BSE.

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