The Procter & Gamble Company (PG), Unilever N.V. (ADR) (UN): A Conglomerate With Huge Upside in Store

To capture a significant market share, Procter & Gamble has been aggressively marketing its toothpaste with the help of popular Indian celebrities. In my opinion, an essential commodity such as a toothpaste, will certainly add a prominent vertical for Procter & Gamble. Besides that, its production of Oral-B toothpaste will serve as a self marketing method for its Oral-B offerings in the country.

Why Procter & Gamble

But Procter & Gamble isn’t the only company that’s taking advantage of the depreciating Rupee. Unilever N.V. (ADR) (NYSE:UN)recently paid $3.2 billion to increase its stake in Hindustan Unilever, by 14.8%. The conglomerate now owns 67.28% in the joint venture, which is in-line with the company’s long term goals. Unilever N.V. (ADR) (NYSE:UN) currently generates around 15-20% of its revenues from India, and the stake increase will only expand its cash flows from India.

However, Colgate-Palmolive Company (NYSE:CL) has yet to come forth with its expansion plans in India. The company generates just 3-5% of its revenues from India, and, without expanding in the country, I’m afraid that its forex losses will only mount with the weakening Rupee.

Although Unilever N.V. (ADR) (NYSE:UN) presents a compelling bullish case, I believe that Procter & Gamble has the most growth potential amongst its mentioned peers. This is because, P&G generates just 40% of its revenues from emerging markets, while Colgate and Unilever N.V. (ADR) (NYSE:UN) generate around 50% and 55% from emerging nations. They have a saturated revenue mix, while P&G seems to have more room for expansions in the developing world.

Final words

At the current prices, all three companies appear to be trading at similar valuations with a similar set of fundamentals. But Procter & Gamble operates with the best debt/equity ratio of 49%, as compared to Colgate’s 302% and Unilever N.V. (ADR) (NYSE:UN)’s 80%. The icing on the cake is P&G’s dividend yield of 3.08%, with a reasonable payout ratio of 49%. Keeping all the reasons in mind, it’s not hard to justify why UBS has an outperform rating for P&G with a price target of $95 per share.

The article A Conglomerate With Huge Upside in Store originally appeared on Fool.com.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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