Ansell lifts as Durex hits supply hurdle

DUREX condoms are set to become scarce on the shelves after a disagreement between the brand's owner and its Indian partner cut up to 60 per cent of supply, analysts say.

By InvestSMART · 14 Jul 2011

By InvestSMART ·
14 Jul 2011

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DUREX condoms are set to become scarce on the shelves after a disagreement between the brand's owner and its Indian partner cut up to 60 per cent of supply, analysts say.

Rival Ansell is set to benefit from the feud, with sharemarket analysts tipping its earnings will rise by millions of dollars.

Durex is facing the condom shortages after India's TTK Lig, which produces 50-60 per cent of the company's condoms, ceased supply in May.

The halt is believed to be about a disagreement over Indian distribution rights between TTK Lig and Durex's owner, England-based Reckitt Benckiser.

But a Durex spokeswoman said a disruption to Australian condom supplies was unlikely. Nevertheless, Citigroup analyst Alex Smith said Ansell was well-placed to pick up Durex's lost sales, potentially gaining an extra $4 million in operating earnings in the first half of 2012.

"Industry sources suggest that the Indian supply disruption is beginning to result in supply shortages of Durex condoms at the retailer level," Dr Smith said in a client note.

"Ansell's Surat Thani plant [in Thailand] will likely have spare capacity from August and Ansell may choose to contract manufacture for Durex if terms are sufficiently scarce."

Ansell shares climbed 9?, or 0.7 per cent, to $13.79 yesterday.

Last month, a judge at the High Court in London refused to grant an emergency injunction to force TTK Lig to resume supplying the contraceptives, ruling the matter should be decided in an Indian court.

In his ruling, Justice George Mann said TTK Lig "has the claimants for the time being over a barrel and it knows it".

Reckitt had already run out of some Durex stocks, he said.

A Durex spokeswoman said yesterday that Durex had several factories across the world and most of Australia's condoms came from Thailand.

"Parts of the product range, which were being manufactured in India, are currently in the process of being moved to alternative facilities," the spokeswoman said.

"As such, a disruption to supply or stock availability on retailers' shelves is unlikely at this stage."

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Frequently Asked Questions about this Article…

What caused the recent Durex condom shortage and how much supply was cut?

The shortage was triggered when Indian partner TTK Lig stopped supplying Durex in May after a dispute over Indian distribution rights with Durex owner Reckitt Benckiser. TTK Lig produces about 50–60% of Durex condoms, and analysts say up to 60% of supply was cut.

Which companies are involved in the Durex supply dispute?

The dispute involves Durex’s owner, England‑based Reckitt Benckiser, and its Indian manufacturing partner TTK Lig. Rival manufacturer Ansell has also been mentioned as a potential beneficiary of lost Durex sales.

Are Australian Durex condom supplies likely to run out?

A Durex spokeswoman said a disruption to Australian supplies was unlikely, noting Durex has several factories worldwide and most of Australia’s condoms come from Thailand. She also said product lines made in India are being moved to alternative facilities.

Are retailers already seeing Durex condom shortages on shelves?

Industry sources cited in the report suggest the Indian supply disruption is beginning to cause retailer‑level shortages. A judge also noted Reckitt had already run out of some Durex stocks.

What legal action took place and what did the court decide in the Durex‑TTK Lig dispute?

Reckitt sought an emergency injunction in the High Court in London to force TTK Lig to resume supply. The judge refused to grant the injunction, ruling the dispute should be decided in an Indian court and noting TTK Lig’s strong negotiating position.

How could the Durex supply disruption affect Ansell’s earnings and business?

Citigroup analyst Alex Smith said Ansell is well placed to pick up lost Durex sales. He estimated Ansell could gain around an extra $4 million in operating earnings in the first half of 2012, and noted Ansell’s Surat Thani plant in Thailand may have spare capacity from August and could consider contract manufacturing for Durex.

How did investors react to the news about the Durex supply issue and Ansell’s position?

Following the supply‑disruption coverage, Ansell shares rose by about 0.7% to $13.79, reflecting investor interest in Ansell as a potential beneficiary of Durex’s lost sales.

What short‑term steps is Durex taking to manage the supply problem?

Durex said it is moving parts of the product range that were manufactured in India to alternative facilities and highlighted its multiple factories worldwide, which the company says makes a major disruption to supply or stock availability unlikely at this stage.