P&G to offload detergent unit in MP

PGHH likely to transfer MP plant to PGHP, than sell it to a third party.

Procter & Gamble Hygiene and Health Care (PGHH), the 65 per cent Indian subsidiary of Procter & Gamble, US, plans to sell or transfer its detergent manufacturing plant at Mandideep in Madhya Pradesh.

In a notice to the Bombay Stock Exchange, the company said its board "would meet on July 11 to consider the sale or transfer of its detergent business". Company executives declined to give more details.

PGHH, through its MP plant, is involved in contract-manufacturing of detergents for the parent company's 100 per cent Indian subsidiary Procter & Gamble Home Products (PGHP).

Sources said PGHH is likely to transfer the MP plant to PGHP, rather than sell it to a third party. The MP plant's contract-manufacturing operations currently contribute more than 35 per cent to PGHH's over-Rs 500 crore turnover.

Apart from the contract-manufacturing operations, PGHH is in charge of P&G's health care brand Vicks and feminine hygiene brand Whisper.

PGHP, on the other hand, is in charge of P&G's shampoo brands Head & Shoulders, Pantene and Rejoice, apart from detergent brands Ariel and Tide that are made by PGHH and other local contract manufacturers.

Analyst Nikhil Vora of SSKI securities pointed out that contract-manufacturing was a steady-cash business for PGHH with 5 per cent conversion margins.

"It acted as a buffer during last year's price war between P&G and HLL.

The proposed transfer is not beneficial to PGHH," he said. At the same time, it is a fine strategic move as PGHP can invest significantly in resources -- a lot more than what PGHH could have done. "A lot though depends on the transfer pricing arrangement," Vora said.

P&G brands Ariel and Tide together have a 10 per cent share in the Rs 5,000-crore detergents market. HLL leads the market with a 38 per cent share.