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P&G: Mixed quarter - Views on News from Equitymaster

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P&G: Mixed quarter
Jan 30, 2009

Performance summary
  • Topline grows by 17% YoY during 2QFY09. Health care which contributes 55% to the total revenues grows by 15% YoY during the quarter.
  • Operating profits decline by 17% YoY, resulting into an EBITDA margin contraction of 9% during 2QFY09.
  • Bottomline witnesses a tepid growth of 2% YoY during the quarter, while it increases by 19% for the half year period.

Standalone financials
(Rsm) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net Sales 1,941 2,261 16.5% 3,454 4,150 20.1%
Expenditure 1,295 1,723 33.0% 2,330 3,030 30.0%
Operating Profit (EBDITA) 646 539 -16.6% 1,124 1,119 -0.4%
Operating Profit margin (%) 33.3% 23.8%   32.5% 27.0%  
Other Income 35 72 105.1% 78 133 70.1%
Interest - -   - -  
Depreciation 28 34 18.3% 54 66 22.4%
Profit before Tax 653 577 -11.5% 1,149 1,187 3.3%
Tax 189 106 -43.9% 341 224 -34.2%
Profit after Tax/(Loss) 463 471 1.7% 808 963 19.1%
Net profit margin (%) 23.9% 20.8%   23.4% 23.2%  
No. of Shares (m) 32.5 32.5   32.5 32.5  
Diluted Earnings per share (Rs)*         45.2  
P/E Ratio (x)*         16.5  
*(trailing 12 months)

What has driven performance in 2QFY09?
  • P&G’s topline grew by 17% YoY during 2QFY09. Health care which contributed 55% to the total revenues grew by 15% YoY during the quarter. Vicks brands continued to witness strong momentum. The Feminine Hygiene business grew by 19% YoY with Whisper Choice and Whisper Ultra driving the growth. During the half year period, Healthcare grew by 17% YoY, while Feminine Hygiene saw a 24% YoY growth. Innovation, distribution growth and strong advertising continue to help the company.

    Cost break-up
    As a % of net sales 2QFY08 2QFY09 1HFY08 1HFY09
    Total Cost of goods 27.6% 30.0% 26.8% 29.9%
    Staff Cost 3.5% 4.5% 4.6% 5.1%
    Advertising 9.4% 13.1% 9.0% 11.4%
    Other Expenditure 26.2% 28.7% 27.2% 26.6%

  • Operating profits declined by 17% YoY, resulting into an EBITDA margin contraction of 9% during 2QFY09. All the expenses were on the higher side. Input cost inflation and weakening rupee led to the fall. During 1HFY09, the margins stood at 27%, declining by 5.6% YoY. The margins are in line with our estimates.

  • Inspite of higher other income, on account of lower margins and onetime cost, the bottomline growth was muted during the quarter. The bottomline saw a tepid growth of 2% YoY during the quarter, while it increased by 19% for the half year period. On account of capacity expansion in a tax efficient zone, tax rates reduced to 19% in 1HFY09 from 30% in the corresponding period last year.

What to expect?
At the current price of Rs 748, the stock is trading at a price-to-earnings multiple of 13.7 times our FY11 estimates. The company has done better than our estimates. While it got affected on the margin front, the management expects the situation to get better in the coming quarters. It is focusing on volume growth rather than opting for price increases. This will stimulate demand in the lower penetrated category. Low penetrated markets, low per capita consumption and well established brands offer good opportunity for the company. We are positive on the company’s growth prospects in the long term.

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