Recent news flow coming out of India has not been particularly positive. There have been a series of disappointing results from companies providing capital goods to India’s power and infrastructure sectors, with the latest being Bharat Heavy Electricals, which reported far weaker earnings than expected.
Of course, India’s Prime Minister remains upbeat and is talking about all sorts of reforms the country can make. The mood, however, is negative.
However, all of this does not put me off the India growth story and certainly does not dampen my enthusiasm for Unilever (LSE: ULVR) (NYSE: UL.US).
Certainly, India is experiencing a difficult time and is not performing quite as well as many investors would have hoped. But it still offers boundless potential, especially for consumer goods companies such as Unilever.
As mentioned, the company has a two-thirds stake in Hindustan Unilever and this gives it access to the highly lucrative Indian market. Indeed, Unilever is perfectly positioned to benefit from a country where over one billion are gradually starting to use more and more consumer goods. For instance, sales of health and beauty products, washing powder and cooking sauces are increasing at a rate that developed markets can only dream of, with Unilever building up a loyal customer base through its trusted brands such as Dove, Knorr and Vaseline.
Sure, there will be highs and lows during this period of growth, and there will inevitably be periods when growth rates are less than expected. However, the trajectory is upwards and the growth potential is compelling.
Of course, to access such potential, one must be willing to pay for it. Unilever currently trades on a price-to-earnings ratio of 21, which may at first seem very high. However, earnings per share are expected to grow at around 10% per annum in each of the next two years and, with there being such vast long-term potential, I think the significant premium is well worth it.
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> Peter does not own shares in Unilever. The Motley Fool has recommended shares in Unilever.
