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P&G: Strong all-round performance - Views on News from Equitymaster
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P&G: Strong all-round performance
Jan 30, 2010

Performance summary
  • Net sale for P&G during 2QFY10 grew by 21.7% thanks to strong performance of the feminine hygiene business.
  • Operating (EBITDA) margins for the company increased by 11.5% to stand at 35.3%. This strong performance was a result of fall in advertisement costs and lower other expenditure.
  • Net profit for the quarter increased by a robust 58.2% on the back of higher operating income, partly offset by lower other income and higher tax expense.
  • Net profit for 1HFY10 increased by 31% while net profit margins increased by 2%. This strong performance was a result of growth in operating income partly offset by lower other income and higher effective tax rate.

(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net Sales 2,261 2,751 21.7% 4,150 5,009 20.7%
Expenditure 1,723 1,781 3.4% 3,030 3,342 10.3%
Operating Profit (EBDITA) 539 970 80.1% 1,119 1,667 48.9%
Operating Profit margin (%) 23.8% 35.3%   27.0% 33.3%  
Other Income 72 56 -22.9% 133 106 -20.3%
Interest - 0   - 0  
Depreciation 34 46 36.6% 66 106 61.2%
Profit before Tax 577 980 69.7% 1,187 1,667 40.4%
Tax 106 235 120.8% 224 407 81.4%
Profit after Tax/(Loss) 471 745 58.2% 963 1,260 30.9%
Net profit margin (%) 20.8% 27.1%   23.2% 25.2%  
No. of Shares (m) 32 32   32 32  
Diluted Earnings per share(Rs)*         64.3  
P/E Ratio (x)*         24.8  
* trailing twelve months

What has driven performance in 2QFY10?
  • The strong performance of PGHH was due to a good show by both its feminine hygiene and health care segments. Feminine hygiene grew by 34% YoY during the quarter on the back of Whisper Choice and Whisper Ultra. At the same time, the health care business grew by 11% YoY led by strong growth of VICKS Action 500+, VICKS cough drops and VICKS inhalers.

    Cost break-up
    As a % of net sales 2QFY09 2QFY10 1HFY09 1HFY10
    Total Cost of goods 30.0% 30.6% 29.9% 32.7%
    Staff Cost 4.5% 4.9% 5.1% 4.5%
    Advertising 17.4% 13.4% 15.2% 13.3%
    Other Expenditure 24.4% 15.9% 22.8% 16.2%

  • Operating income for the quarter grew by 80% YoY. This was because PGHH was able to reduce its advertisement expenditure as the heavy spending on advertisement in 2QFY10 had a spillover effect. Moreover, fall in other expenditure helped boost operating income during the quarter. The growth in operating income could have been higher. However, increase in raw material and staff costs as a percentage of sales capped the growth. Cost of goods grew by 24% YoY while staff costs grew by 33.7% YoY.

  • While net profit margins increased by almost 6% to stand at 27.1%. This increase was partly offset by lower other income which fell by 23%, higher depreciation costs which increased by 36% and higher effective tax rate.

What we expect?
At a price of Rs. 1,594, the stock is trading at 18.7 times our estimated FY12 earnings. The company has solid products in its portfolio of which feminine hygiene operates in an under penetrated category. We believe that the company has great potential due to the opportunity in this category. However, the valuations of the company have run up quite a bit from a 2-3 year perspective and hence we have revised our view on this stock.

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