Due to a plethora of reasons, Indian currency has depreciated by nearly 20% against the U.S Dollar over the last year. So, while Indian exporters are having a great time, foreign companies operating in India have been struggling with massive foreign exchange losses.
Since the Indian GDP is still expected to grow at 5-7% over for the next few years, foreign companies including The Procter & Gamble Company (NYSE:PG) and Unilever N.V. (ADR) (NYSE:UN) are taking advantage of the depreciated Rupee, and are investing heavily in the country.
A loss making division
To begin with, The Procter & Gamble Company (NYSE:PG) operates with just 13 brands in India and generates only a fraction of its revenues from the country. But it is the fastest growing consumer goods company in India, with an annual growth rate of around 20% over the last 10 years. Although P&G has over 50 different brands available in over 90 countries, the company hasn’t been inducting its remaining brands in India due to their premium pricing and low per capita income in India.
On the operations side, The Procter & Gamble Company (NYSE:PG) booked losses of Rs 192 Crores ($30.2 million) in India over the last two years. This is because the company doesn’t have domestic manufacturing facilities for all of its 13 brands, and has a huge reliance on imports. The end result, its forex losses were greater than its profits.
Signalling a turnaround
To reduce its dependence on imports, The Procter & Gamble Company (NYSE:PG) recently announced that it will be investing $1 billion in India over the next 5 years. It will be setting up its largest Asian manufacturing facility in Andhra Pradesh, which will be spread over an area of 170 acres. The best thing about the project is that The Procter & Gamble Company (NYSE:PG) will be reimbursed 75% of the value added tax for the next 5 years by the Andhra Pradesh government. Not only will this bolster its margins, but also free up capital for reinvestment purposes.
Besides that, The Procter & Gamble Company (NYSE:PG) also announced that it will manufacture Oral-B Health Pro toothpaste in India. The Indian toothpaste industry is estimated to be worth around $700 million, and is largely dominated by Colgate-Palmolive Company (NYSE:CL) and Unilever N.V. (ADR) (NYSE:UN) with a collective share of 77%. Colgate enjoys a 51% market share, while Unilever N.V. (ADR) (NYSE:UN) operates with a 21% market share through its joint venture, Hindustan Unilever.