P&G Hygiene: Margins advantage - Views on News from Equitymaster

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P&G Hygiene: Margins advantage

Feb 2, 2001

P&G Hygiene & Healthcare Limited has declared a 28% jump in its bottomline in its second quarter ended December 31, 2001. However, P&G could not escape the slow down in its turnover growth. The company's turnover growth was a minor 1% during the quarter.

(Rs m) 2QFY00 2QFY01 Change 1HFY00 1HFY01 Change
Sales Turnover 1,341 1,359 1.3% 2,534 2,560 1.0%
Other Income 10 12 15.0% 12 26 116.9%
Total expenditure 1,024 980 -4.2% 1,972 1,900 -3.6%
Operating Profit (EBDIT) 318 379 19.2% 562 660 17.4%
Operating Profit Margin (%) 23.7% 27.9% 22.2% 25.8%
Interest 17 0 - 29 1 -95.1%
Depreciation 56 70 24.5% 114 143 25.6%
Profit before Tax 254 320 26.0% 431 541 25.4%
Tax 47 56 18.2% 75 91 21.6%
Profit after Tax/(Loss) 207 264 27.7% 356 450 26.2%
Net profit margin (%) 15.4% 19.4% 14.1% 17.6%
No. of Shares (eoy) (m) 21.6 21.6 21.6 21.6
Earnings per share* 32.9 41.6
Current P/e ratio 16.2

However, the company managed to put in a good performance by improving its operations. It improved its operating margins by 420 basis points by controlling expenditure. P&G also pruned its debt burden. As a result, its interest costs were zero during the quarter. The company's net margins too, improved by 400 basis points.

The company's consolidated first half performance was almost identical to the second quarter performance, indicating a consistency in P&G performance.

To lend focus to its business, P&G consciously decided to be present only in two products viz. Anti-cold (Vicks) and feminine care (Whisper). Its strategy has revolved around premium positioning of both its product categories. In a sense, the company has been focussing on margins (value) rather than volumes. But competition from products such as Dcold and Smyle has impacted the sales of Vicks cough drops.

The stock trades at a P/e multiple of 16.2 times its annualised half yearly FY01 earnings. For P&G we had projected a net profit of Rs 763 m in FY01. The company's performance in the first half indicates that it is likely to exceed those projections.

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