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Seeing positive consumption trends; Maintain Neutral

We recently participated in Gillette India Ltd. (GILL’s) Investors & Analysts Call held by the management to highlight company's performance, strategies and business outlook. Key takeaways: 1) Seeing positive consumption trends with greenshoots in rural markets but cautious about unemployment and wages data, 2) GILL has seen 1.5x increase in its reach & coverage in last 3 years, 3) Male grooming continues to see highest ever share even in competitive market environment, 4) Within the large female hair removal market, razors have seen fastest growth and Venus has doubled its revenues in last 5 years growing in double digits, 5) Gill saw structural margin improvement of ~200bps in recent quarter through productivity and innovations. We recently (post the June’24 quarterly results) downgraded the stock to NEUTRAL rating from BUY after it delivered ~63% post our initiation on 30th Aug 2023. Information provided during the analyst meet does not lead to any change in our earnings or TP, hence we maintain our TP of Rs9,035, targeting ~56x on Sep’26E EPS (similar to its 5yr avg fwd. multiple).

Key pointers from Gillette India’s Investors Analysts Meet 2024:

* Macro: Positive trends are finally emerging in consumption with greenshoots in rural. Lower inflation and strong monsoons augur well for rural consumption. Declining rural wages and unemployment are still a concern.

* Male Grooming: GILL has continued to be the market leader with the highest ever market share in a market environment with increased competitive intensity. Blades & Razors category stands at Rs3.3bn growing in mid-single digit. Company acknowledges the change in category with trend towards beards, but it is driving or maintaining high shares with innovations like Fusion (redesigned as re-styling tool).

* Female Grooming: Female grooming is a large market in which GILL focuses on inhome hair removal and competes with creams and salons. Razors have seen the highest growth on the back of convenience in a fast-paced life with lesser time to remove hair. In the past 5 years, Venus has double its revenues and has grown in double digits.

* Oral care: Growth in toothbrush has been slow for GILL due to competitive intensity in the entry level portfolio. Company recently upgraded the packaging so that the consumer easily identifies in a cluttered shelf space. It expects mid-single digit growth for the segment.

* Appliances contribute to 2% of the category in India. Braun has the best technology globally when it comes to shaving and trimming. The products are primarily available on e-commerce and digital platforms.

* Electric toothbrush: The company continued to strengthen the portfolio across all ages. Launched electric brushes with lower price points.

* Distribution: Reach & coverage increased by ~1.5x for the grooming category over the last 3 years. Company developed in-house AI & ML to predict consumption which has helped them significantly reduce dead stocks.

* Innovations: In FY24, GILL launched Gillette Labs razor and Venus Bikini Sensitive razor. Company also rolled upgraded Gillette Guard priced at Rs 12 supported by superior compelling advertisement for Hindi heartland. Introduced toothbrushes for kids in partnership with ‘Chota Bheem’.

* A&SP: The spends were significantly higher in FY24 and was function of business need, innovations and consumer awareness support. When a superior product enters the market, the company does aggressive A&SP to create awareness, which was the case in FY24.

* Structural margin improvement of ~200bps in FY24 was driven by productivity as well as product innovation for consumers to trade up.

* Productivity: Company saw savings of Rs450mn in FY24 owing to productivity.

* P&G Shiksha: Program now completing 20 years, touching 1,000 schools & communities, impacting 45+ lacs students.

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