Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
P&G: Past, present and future… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 28, 2005

    P&G: Past, present and future…

    Procter and Gamble Hygiene and Health Care Limited (PGHH) is the listed Indian arm of Procter and Gamble company USA, which is focused on the twin businesses of health care and feminine hygiene. Under its belt it has two brands namely 'Vicks' and 'Whisper'. Let's take a look on how the company has performed over the past 5 years.

    P&G is a 65% subsidiary of the FMCG major, P&G USA. In India, the company is a focused two-product company, dominating both segments backed by strong brands, namely 'Vicks' in the anti-cold segment and 'Whisper' in feminine care segment. PGHH's Whisper leads the premium segment with over 40% value market share. Johnson & Johnson is the main competitor and the market leader in volume terms. The parent has two other 100% subsidiaries in India, which have a well-known shampoo (Head & Shoulders, Pantene, Rejoice) and detergent portfolio (Ariel, Tide). P&G undertakes contract manufacturing for its parent's detergent portfolio in India.

    Over the years…
    (Rs m) FY01 FY02 FY03 FY04 FY05E CAGR
    Net Sales 4,100 4,094 4,382 5,772 7,163 15.0%
    Other income 88 149 148 150 206 23.8%
    Expenditure 3,113 3,091 3,468 4,519 5,343 14.5%
    EBDIT 1,075 1,152 1,063 1,403 2,026 17.2%
    OPM% 26% 28% 24% 24% 28%  
    Net Profit After Tax(loss) 827 770 680 922 1,362 13.3%
    Contract Manufacturing*   1,199 1,270 2,050 2,735 31.6%
    * In FY02, manufacturing of soaps and detergents was delicensed

    From the above table, we infer that sales have grown at a decent 15% CAGR over the 5 year period despite of the FMCG Sector underperforming from sometime now. The company's operating profit has grown 17% CAGR during the period under review, indicating continuous improvement in profitability. Profit after taxes also saw a decent growth of 13% over the years. Contract manufacturing, which the company undertakes for it's parent's subsidiary - P&G Home Products (who initiated a price war by cutting prices of its detergents) saw an explosion in topline during FY04. Consequently, CAGR for this business took a quantum leap at 31% between FY02 to FY05E. The company licensed the Old Spice trademark and business to a Goa based company for a period of ten years to manufacture, sell, distribute and market the Old Spice products in India, Sri Lanka and Bangladesh in FY02 for which the company receives a fee.

    Growth opportunities
    While the 'Vicks' brand addresses all segments in the anti-cold segment (Vicks Action 500 tablets, Vaporub, Inhaler and cough drops), 'Whisper' is considered a pioneer in the fast growing Indian feminine care (sanitary napkins) category. Infact, Whisper accounts for over 40% share in the Rs 3 bn sanitary napkin market.

    As per estimates, only 20%-25% of urban women in India use sanitary napkins. The ratio is much lesser in other smaller towns and rural regions. Going forward, as living standards improve, the usage of the same is likely to increase, which would be largely beneficial to companies like P&G Hygiene in particular. To grow its Vicks folio, the company has recently entered the liquid dosage form in the anti-cold category – 'Vicks Formula 44'. The liquid form is the largest contributor to the Rs 5.5 bn anti-cold market in India.

    P&G is largely a two-product company out of which 'Vicks' is mainly a seasonal product since it is used only in winters, sales are volatile. Also, it faces stiff competition from domestic local brands like Amrutanjan, Zandu etc., in rubs and balms, and from MNC brands such as Halls, Strepsils in cough lozenges segment. A recent entrant Paras Products has been giving stiff competition to Vicks Vaporub, by aggressive advertising and competitive pricing of its products.

    Kimberly Clarke, a leading global player in the feminine hygiene segment, has launched its product in the Indian market through a joint venture with Hindustan Lever. P&G has traditionally adopted the high quality, premium pricing policy for its products. The Indian market is extremely price sensitive and the company has been witnessing immense pressure from competitively priced products of other players in both its core businesses.

    The parent has two other subsidiaries and most of the parent's worldwide product folio like hair care (Head and Shoulders, Pantene) as well as detergents (Ariel and Tide) have been introduced through these two 100% subsidiaries. The PGHH shareholders do not get a share of these businesses apart from the EBIT margin of about 4.7% that it earns for the contract manufacturing that it does for these entities.

    What's new?
    Globally, P&G has recently acquired Gillette for US$ 57 bn and there may be some minor positive impact, but more negotiating power vis-à-vis global retailers is not going to amount to much. At the same time, the deal creates an enterprise that is unmatched in geographic reach and competitive positioning. Globally, after the acquisition, P&G will become the market leader dethroning Unilever who held the position for a long time.

    As far as its Indian operations are concerned, the acquisition is no doubt a big positive for P&G in India. However, investors have to be aware of two factors here. One, P&G, besides the listed company in India, has other 100% subsidiaries in India. Even if the deal goes through, it is unlikely that P&G Hygiene will get access to the Gillette folio. They may at best be marketers or manufacturers of some of the Gillette products.

    What to expect?
    At the current price of Rs 565, the stock trades at a P/E of 13 times 1HFY05 annualised earnings and market cap. to sales of 3x. Investors need to consider that over 90% of P&G's total PBIT comes from its core business. Though contract manufacturing will continue to spearhead topline momentum, focus should be on the company's core operations of health and hygiene. The positive thing is that its core business performance is encouraging. The company has introduced a new variant of Whisper at a lower price point in southern India. This may increase penetration of the product, thereby aiding volume growth. At the same time profit margins are under tremendous pressure, which are a cause of concern.

    We had recommended P&G Hygiene in November 2003 as a BUY with a target price of Rs 630. The stock has breached that earlier. In the coming years, as the unlisted P&G subsidiaries make their presence felt in the detergent space, P&G Hygiene too will benefit from the quantum of contract manufacturing. Also, the poor per capita consumption for its feminine care folio indicates latent growth potential. On the flip side, there are many international brands (imports) available now atleast in the key metros that sometimes work out to be cheaper for consumers. In that sense, the space is getting competitive. In short, though P&G may benefit from an uptick in consumption, its relatively two-product focus and the parent's other 100% subsidiaries put it at a bottom heap of our valuation matrix. In our view, there are better growth stories available in the FMCG space.

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)