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We initiate coverage on Gillette India Ltd (GILL) with ADD rating. Our view is pinned on the following arguments: (1) Expect core portfolio to improve or atleast maintain share with potentiality of stronger growth led by part reversal in trend towards clean shave (2) Women’s razor & shave care portfolio offers delta through penetration led growth (3) We hope GILL’s brand equity & global expertise to help play catch-up in electric segment where it has been a laggard (4) Global mix and margin profile shows potential for Gillette’s India grooming business (5) Latest quarter’s performance suggest improving growth (6) Even after recent run-up (up ~25% in last 3 months), valuations remain lower than median.

Expect core portfolio to improve or atleast maintain share With industry growths improving in ‘beyond urban’ market in near term, we believe GILL can see volume growth improvement through the men’s shaving value brand ‘Guard’. Even in midst of increased competition in the core portfolio of men’s razor & shave care especially in the online channel, we expect the market leader to grow at atleast ~7% CAGR owing to its strong brand equity, robust distribution set-up built over the years especially in offline channel (general retail, chemist, modern trade), innovations and the capacity to spend high on advertisement & sales promotions (A&SP) behind a single category. Our assumptions could have an upside, if the category sees even a part reversal in trend towards clean shave.

Women’s razor & shave care portfolio offers delta through penetration led growth Management believes the female hair removal category to be as big as men's grooming. While there are substitutes for women’s hair removal in the form of creams, epilators, etc. but the low penetration levels, DIY nature and painless method provides enough growth headroom for razors. GILL started off with disposables but now has business even in systems. We believe women’s range could be in the range of 10-15% for GILL. Bombay Shaving Company (BSC) with its brand “Bombae” have also started investing behind the category and women’s products is already accounting for ~25% of its overall business. We expect this portfolio to grow faster for GILL than the men’s portfolio over the next few years

We hope GILL’s brand equity & global expertise to help play catch-up in electric segment GILL has been a rather late entrant in the electric shavers, trimmers and epilators segment. It won’t be an easy task for GILL in this vertical as (a) players like Philips have a strong brand recall (b) long replacement cycle of the product (c) increased number of players (largely focused on online channel) with innovative products. What could really work in GILL’s favour is its brand equity & global expertise, which might help play catch-up. Products from global portfolio especially in the ‘Intimate’ segment can potentially address & open new market.

Global mix and margin profile shows potential for Gillette’s India grooming business Gross margin recovery will support near term profitability. Over the medium term, P&G Global grooming business margins shows potential for India Grooming business. Global grooming business EBIT margin stood at 28.1% in FY23 (EBITDA margin of 33.4%) versus Gillette India’s grooming business EBIT margin of 19.3% in FY23 (EBITDA margin of 23.4%, as per our estimate). Premiumization and segmental mix improvement will be a key driver of margins over the long term thus reducing gap with global margins.

4QFY23 & FY23 (June-ending FY) Result Highlights What we liked in 4QFY23 & FY23 performance?: 1) Robust grooming segment growth. 2) Highest-ever market share in the Blades and Razors category in FY22-23. 3) Oral care has is recovering well. 4) Sharp improvement in cash conversion cycle in FY23. 5) Dividend payout maintained for FY23 despite managements prudent view to manage cash this year amidst challenging operating environment and significant cost headwinds.

Initiate coverage on GILL with an ADD rating and a target price of Rs6,090 GILL boasts strong retrun ratios and has healthy dividend payout. It is currently trading at ~48x 1-yr forward earnings (still lower than the Median PE). We assign a target multiple of ~48.5x on June’25 EPS (3yr/5yr avg fwd. multiple ~53x/65x), arriving at a target price (TP) of Rs6,090. Initiate with ADD rating. Near term valuations offer limited upside on one-year forward basis post recent run-up (up ~25% in last 3 months).

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