Procter & Gamble Hygiene and Healthcare Ltd. formerly P&G India, has identified healthcare and feminine hygiene as the long-term areas of growth. It has discontinued its arrangement with P&G Home Products, for the manufacture of shampoo in the current year. This is following a change in the product formulation of shampoos by P&G Home Products which required massive additional doses of capital, which it is learnt, the company was not ready to commit. The termination of the agreement will affect the company’s sales by Rs 14 crore in the second half of 1999-2000.

PG Hygiene and Healthcare is in charge of the Vicks brand of healthcare products, the Whisper brand of feminine hygiene products, Old Spice Men’s toiletries and Clearasil. Until April this year, the brand of medicated shampoo, Mediker, was also in the company’s portfolio when it was sold off to Marico Industries. The company has also entered into a distribution-cum-marketing tie-up with Marico for Clearasil and Old Spice Men’s toiletries.

PG Home Products is in charge of the Ariel brand of detergents--Ariel Compact, Ariel Gain and Ariel washing bar, It also has the Pantene Pro V and Head & Shoulders shampoos and Camay soap.

PG Health and Hygiene has been slowly limiting its focus to just two brands--- Whisper and Vicks---which it feels have the potential to become market leaders. Over the years it has gradually divested out of businesses which it considers non-core areas. It sold its detergents business to P&G Home Products, the wholly-owned subsidiary of Procter &Gamble Co, US, in 1993. This was followed by the transfer of distribution rights for brands such as Clearasil and Old Spice to Marico Industries. The anti-lice shampoo brand, Mediker, was also sold to the same company for Rs 10 crore.

P&G Co. US operates in India through two subsidiaries: PG Hygiene and Healthcare and PG Home Products. While the former is a listed company on the Indian bourse in which the parent company has a 65 per cent equity holding, the latter is unlisted and is a wholly-owned subsidiary of the American company .

In recent years, the parent company has been favouring its wholly-owned subsidiary with all new product launches as a result of which, while marketing and distribution rights for Ariel, Head & Shoulders and Pantene lie with P&G Home Products, P&G Hygiene and Healthcare is left with just two major brands mentioned earlier.

Vicks has lost market share to spurious look-alike brands and a host of new products in the market. To strengthen its brand image, the company has given Vicks the status of a mega brand and all Vicks sub-brands--Vaporub, Action 500, Cough Drops, Inhalers--have been given a common synergy via packaging to make them look identical.

P&G has been losing market share in sanpro since mid-1996. This was accelerated by the launch of Johnson & Johnsons''s Stayfree Secure and Kimberley Clarke Lever''s Kotex in end-1997. From a market share of approximately 43 per cent before the launch of Secure and Kotex, Whisper''s share has dropped to an all-time low of 28.5 per cent in June 1999.The company intends to attain the erstwhile position of this brand via a slew of marketing measures. It launched a slim, extra-long version of Whisper with Wings a few months ago and is reported to have spent 60 per cent of Whisper''s annual ad expenditure in the first six months of this year alone.

While the company retains two major brands in its product portfolio, roughly 45 per cent of its revenues are derived from its contract manufacturing agreement with P&G Home Products. P&G Health and Hygiene manufactures soaps, shampoos and detergents for P&G Home Products. This has helped in shoring up revenues.

However, this revenue may also be in jeopardy. Recently its agreement for shampoos with P&G Home Products was terminated, since the parent company had changed the product formulation and a large amount of investment was required to make the changes and the wholly-owned subsidiary reportedly was not willing to undertake the required investment.

For P&G Health and Hygiene, this means a significant loss of revenue. While it will undoubtedly get an adequate once-off compensation, it will not recompense for the permanent loss of revenue.

PG Home Products has been focussing on the Ariel range, Pantene and Head & Shoulders, and has virtually put Camay soap on the backburner. Recently the company entered into a distribution and marketing agreement with Marico Industries for Camay.

In 1998-99, as part of its global corporate restructuring program called Organization 2005, PG Hygiene and Healthcare made several changes in structure, work processes and culture to generate greater stretch, innovation and speed to help its products reach the market faster. The company in India has offered a VRS of Rs 9 crore to 60 employees during the year by reengineering its work processes.

Last year, 1997-1998, saw PG Hygiene and Healthcare sales rising by six per cent at Rs 468.3 crore over the previous year, while net profit rose by 32 per cent to stand at Rs 56.86 crore as against Rs 43.19 crore the previous year. Sales of sanitary napkins registered a growth of two per cent and healthcare products grew marginally by 1.5 per cent. Products under the Vicks brand such as Vaporub and Action 500 recorded double-digit growth, while sales of cough drops declined over the previous year.

Of late, the market has been taking note of the risks of a limited brand profile and tended to accord a lower valuation to companies like P&G and Smithkline Beecham Consumer Healthcare than companies like HLL and Reckitt and Coleman whose product portfolio straddles a greater number of segments. Also the uncertainty of whether or not product launches would be routed through the listed company may also affect the stock of the company.

The good news for P&G Hygiene and Healthcare is that the operational restructuring effected over 1998-1999 may improve its profit margins. During 1998-1999, the company moved to a demand-driven system of stock replenishment and sharply cut distribution margins on its key products. This resulted in improving the company’s profit margins for 1998-1999 to 19.5 per cent as against 17.3 per cent the previous year. Around March this year, Procter & Gamble decided to reorganize its businesses across Asia nominating a particular country as the focal point in each region for a product category. As part of this India was named the hub of the company’s healthcare business in the Asian region and Australia. PG Hygiene and Healthcare is already being used as a sourcing base for products such as Vicks in the Asian region. Exports contributed 5 per cent of the company’s sales in 1998-1999 and recorded higher growth rates than the domestic business.