P&G: Restructuring benefits… - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

P&G: Restructuring benefits…

Mar 4, 2003

P&G Hygiene and Healthcare Limited (PGHH), the two product focused FMCG company (Vicks and Whisper), has had a lacklustre first half in FY03 (the company follows June year ending for accounting). In the period from July - December 2002, the company has reported a marginal 1.3% topline growth, and only 3% bottomline growth.

(Rs m)2QFY022QFY03Change1HFY021HFY03Change
Net Sales1,3491,3610.9%2,3992,4301.3%
Other Income225-78.0%5453-3.1%
Operating Profit (EBDIT)37245221.5%6657167.7%
Operating Profit Margin (%)27.6%33.2% 27.7%29.4% 
Interest 00-00-
Profit before Tax33642626.9%59770618.2%
Extraordinary items73-13-73-13-
Profit after Tax/(Loss)3063204.6%5025162.7%
Net profit margin (%)22.7%23.5% 20.9%21.2% 
No. of Shares (eoy) (m)21.621.6 21.621.6 
Diluted Earnings per share*56.659.2 46.447.7 
Current P/e ratio 6.5  8.1 

However, cost controls saw the company expanding its operating margins to 29.4% during 1HFY03. An almost 50% dip in depreciation costs saw probit before tax grow by 18% during the period. Depreciation provisioning has gone down as the company sold its Hyderabad factory assets to a contract manufacturer in January 2003. There will be no profit hit to the company on this transaction. Procter & Gamble Singapore will reimburse the PGHH the separation expenses and loss on sale of the assets.

Extraordinary items in 1HFY03 (Rs 13 m) is the net of reversal of expenses of prior years (Rs 40 m) and impairment of Honda factory assets no longer in use (Rs 53 m). The dip in depreciation is also on account of this impairment in assets. If we exclude the extraordinary items, then P&G Hygiene's net profit has improved by an encouraging 24% YoY. So PGHH is following the industry trend, wherein its focusing on restructuring its operations to become more profitable, when topline growth is hard to come by.

Given PGHH’s clear strategy on focusing on two products with premium positioning, the company in the past has continually clocked double-digit growth figures both in topline and bottomline. However, increasing competition is the sanitary napkins market as well as in the anti-cold segment has taken a toll on growth of the company. In FY02, the company finished with a measly 0.4% topline growth, as it has been forced to either reduce its premium on products or offer schemes to boost sales (at one time, a campaign which gave 20% off on 'Whisper' was being run). P&G is also not as strong as the Unilever subsidiary, HLL, in distribution. Of course, both its products have an urban appeal and to that extent distribution strength is not comparable.

At the current price of Rs 385, the stock trades at 8.1x annualised 1HFY03 earnings and a market cap to sales of 1.7x 1HFY03 earnings. Though the valuation of the company is on the lower side of the FMCG spectrum, the parent's other Indian subsidiaries, the company's niche presence and continuing pricing pressure on its products are the negating factors for investors. Nevertheless, on the positive side, the company is a good dividend payer (it has paid Rs 40 per share as dividend twice in the last four years). Also, the parent may opt to go in for a buyback if the valuations continue to remain sluggish.

Equitymaster requests your view! Post a comment on "P&G: Restructuring benefits…". Click here!


More Views on News

P&G HYGIENE 2019-20 Annual Report Analysis (Annual Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

Here's an analysis of the annual report of P&G HYGIENE for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of P&G HYGIENE. Also includes updates on the valuation of P&G HYGIENE.

Adani Wilmar IPO to Hit the Market Soon. Should you Apply? (Views On News)

Nov 29, 2021

The parent company of the brand Fortune is set to raise Rs 45 bn from the market.

What Happens if ITC Hives off ITC Infotech? (Views On News)

Nov 20, 2021

The cigarette to hotel conglomerate is reportedly mulling the demerger of its software business at a valuation of around Rs 250 bn.

What Sparked an 8% Rally in ITC Shares Today? (Views On News)

Sep 16, 2021

ITC did not participate in the rally after the second wave and continued to underperform its peers. Is this about to change?

HUL's Marketcap Tops Rs 6 Tn. Key Factors Driving the Stock (Views On News)

Aug 21, 2021

HUL became the fifth Indian company to achieve the milestone of a Rs 6-tn market capitalisation.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 7, 2021 12:17 PM


  • Track your investment in P&G HYGIENE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks