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P&G: Other income saves the day - Views on News from Equitymaster
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P&G: Other income saves the day
May 4, 2009

Performance summary
  • Topline grows by 20% YoY during 3QFY09 and 9mFY09 reflecting the strength of its brands.
  • Margins decline by 9.2% YoY and 7% YoY during 3QFY09 and 9mFY09 respectively on account of increase in all the expenses (as percentage of sales).
  • Bottomline registers a 27% YoY growth during the quarter mainly on account of higher other income and lower tax rates.


Standalone sales
(Rsm) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net Sales 1,488 1,778 19.5% 4,942 5,927 19.9%
Expenditure 1,085 1,461 34.6% 3,416 4,491 31.5%
Operating Profit (EBDITA) 402 317 -21.2% 1,526 1,436 -5.9%
Operating Profit margin (%) 27.0% 17.8%   30.9% 24.2%  
Other Income 30 178 494.0% 108 311 187.8%
Interest 0 -   0 -  
Depreciation 36 38 4.7% 89 103 15.3%
Profit before Tax 396 458 15.5% 1,545 1,645 6.4%
Tax 123 109 -10.7% 463 334 -28.0%
Profit after Tax/(Loss) 274 348 27.3% 1,082 1,311 21.2%
Net profit margin (%) 18.4% 19.6%   21.9% 22.1%  
No. of Shares (m) 32.5 32.5   32.5 32.5  
Diluted Earnings per share (Rs)*         48.3  
P/E Ratio (x)*         16.7  
*(trailing 12 months)

What has driven performance in 3QFY09?
  • P&G witnessed a topline growth of 20% YoY during both the periods under consideration. The feminine hygiene segment which contributed around 61% to the revenues grew by a robust 25% YoY during the quarter. Low penetration, increasing awareness and strong brand building initiatives by the company aided growth. The health care segment grew by 13% YoY. The strong growth on a consistent basis despite the economic slowdown reflects the strength of its brands. P&G has done better than our estimates for the full year.

    Cost break-up
    As a % of net sales 3QFY08 3QFY09 9mFY08 9mFY09
    Total Cost of goods 26.9% 31.8% 26.8% 30.5%
    Staff Cost 5.3% 6.5% 4.8% 5.5%
    Advertising 12.1% 14.6% 9.9% 12.4%
    Other Expenditure 28.8% 29.3% 27.7% 27.4%

  • Operating expenses grew at much faster rate than the topline growth mainly on account of increase in all the expenses (as percentage of sales) during the quarter. This resulted in a 21% YoY decline in operating profits and a contraction in EBITDA margins by 9.2% to 17.8% during the quarter. Even during the nine month period, the margins tanked by 7% YoY. On account of low usage and penetration of feminine products, the company has been taking marketing initiatives to help raise awareness, thereby spending higher on advertising. The performance on the operating margin front has been lower than our estimates.

  • Despite the fall in operating profits, the bottomline grew by 27% YoY during the quarter. Higher other income (up 499% YoY) on account of write back of liabilities no longer required led to the growth. For the nine month period, the profits reported a growth of 21% YoY. The company has also expanded its capacity at Baddi (tax efficient zone) and Goa facility to meet the increasing demand for its products. As a result the effective tax rate reduced to 24% during the quarter (31% in 3QFY08) and 20% during 9mFY09 (30% during 9mFY08). The company has done well as compared to our estimates mainly on account of higher other income and lower tax outgo.

What to expect?
At the current price of Rs 808, the stock is trading at a price-to-earnings multiple of 14.7 times our FY11 estimates. While the company witnessed some pressure on the margin front, it has done well to yet again report a strong topline growth. The company’s strategy of increasing the feminine segment penetration and awareness would help it in the long run. The increase in capacities would further benefit the company. We remain positive on the long term growth prospects of the company.

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