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P&G: Growth continues - Views on News from Equitymaster
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P&G: Growth continues
May 2, 2008

Performance summary
  • Topline for 3QFY08 and 9mFY08 grows by 21% YoY and 19% respectively led by strong performances of both of its businesses namely feminine hygiene and healthcare.

  • Operating margin improves to 27% and 30.9% in 3QFY08 and 9mFY08 respectively.

  • Bottomline grows by 28% YoY and 40% YoY in 3QFY08 and 9mFY08 respectively led by lower tax expenses.

(Rsm) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net Sales 1,229 1,488 21.0% 4,140 4,942 19.4%
Expenditure 900 1,085 20.5% 2,937 3,416 16.3%
Operating Profit (EBDITA) 329 402 22.4% 1,203 1,526 26.9%
Operating Profit margin (%) 26.7% 27.0%   29.1% 30.9%  
Other Income 34 30 -12.0% 108 108 0.5%
Interest - (0)   0 (0)  
Depreciation 27 36 32.5% 66 89 36.3%
Profit before Tax 336 397 18.1% 1,245 1,545 24.1%
Tax 122 123 0.7% 474 463 -2.2%
Profit after Tax/(Loss) 214 274 28.0% 772 1,082 40.2%
Net profit margin (%) 17.4% 18.4%   18.6% 21.9%  
No. of Shares (m) 32.5 32.5   32.5 32.5  
Diluted Earnings per share (Rs)*         37.2  
P/E Ratio (x)*         21.4  
*(trailing 12 months)

What has driven performance in 3QFY08?
  • The topline for 3QFY08 and 9mFY08 has grown by 21% YoY and 19% respectively led by strong performances of both of its businesses. While the feminine hygiene business grew by 23% YoY, the healthcare segment grew by 17% YoY during the quarter. Whisper and Vicks, the company’s flagship brands continued to witness robust growth. The feminine division contributed 58.8% to the total sales as compared to 58% in the corresponding quarter last year.

  • The proportion of working women to population has increased from 26% in 2000 to 36% in recent times. This leads to higher income and thereby more spending on personal and hygiene products. With the number of working women expected to increase further, the demand for hygiene products is expected to be robust.

    Cost break-up
    As a % of net sales 3QFY07 3QFY08 9mFY07 9mFY08
    Total Cost of goods 29.0% 26.9% 25.0% 26.8%
    Staff Cost 6.4% 5.3% 5.3% 4.8%
    Advertising 11.4% 12.1% 11.5% 9.9%
    Other Expenditure 26.4% 28.8% 29.1% 27.7%

  • The margins have improved during both the periods under consideration. While ad and other expenses (as percentage of sales) were higher in 3QFY08, raw materials costs also significantly increased to 27% of sales in 9mFY08 (25% in 9mFY07). The company continues to build the Whisper brand by direct marketing and ad promotions.

  • For 3QFY08, the bottomline grew by 28% YoY. Higher margins coupled with a lower tax outgo led to the growth. The tax rate reduced from 36% in 3QFY07 to 30.9% in this quarter. For 9mFY08, the company’s net profits grew by 40% YoY led by the tax rate falling down to 30% from 38% in 9mFY07.

    What to expect?
    At the current price of Rs 796, the stock is trading at a price-to-earnings multiple of 14.4 times our FY10 estimates. The expansion benefits have began to flow in, in terms of higher sales, better margins and tax benefits. The company has outperformed our estimates. It continues to promote its Whisper brand through higher ad spends to spread more awareness among female groups. Considering the high growth potential backed by strong brands, we have a positive view on the stock.

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