In a bid to up-trade users of other mass detergents, Procter & Gamble Hygiene & Health Care (P&G) has launched a new variant of Tide called Tide Naturals. The formulation for Tide Naturals would be relatively inferior in quality, implying lower raw material costs. Analysts, however, rule out large-scale up-trading.
The reason? Tide Naturals is priced at Rs50 per kg compared with Rs 32 per kg for rival Hindustan Unilever’s (HUL) mass brand, Wheel —- a premium of 56% that may be too high to up-trade in the highly price-sensitive mass segment.
All the same, the move will increase competition in the mid-price level segment, intensifying competition for HUL’s Rin, for one. Consumers in the mid-price segment could shift to the lower priced Tide Naturals. This bodes ill for HUL, which is already facing lower volumes and loss of market share in mass-end detergents. HUL may have to launch a lower priced variant of Rin, which would impact profitability. Somewhat comfortingly, Rin accounts for just 3% of HUL’s revenues and this would limit the downside.
The new variant could even hurt the mother brand Tide, to P&G’s disappointment.
P&G had also launched two new variants of Olay brand at the premium end some time back. Such aggressive launches reflect its intention to be present across segments. For the quarter ended September, P&G posted strong year-on-year double-digit revenue growth of 19.6%. Growth in revenues was driven by a robust 32% increase in the feminine hygiene segment. Operating profit margins expanded by just 10 basis points (100 basis points make one percentage point) to 30.8%, restricted by a sharp increase in raw material costs. Net profit increased 4.7%, impacted by higher depreciation cost and tax outgo.
At Rs1,712.10, the P&G stock trades at 24 times its estimated earnings for 2010. It has outperformed broader markets in the last one month, appreciating 17% as against an 8% gain for the BSE Sensex. Investors could consider the stock on declines.
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