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P&G: Dismal performance in FY01

Aug 28, 2001

Procter & Gamble Hygiene and Healthcare Ltd. (PGHH) has reported a subdued performance for the year ended June 2001. While the company's revenues declined by 6%, profits were up by a marginal 10%.

(Rs m) FY00 FY01 Change
Sales 4,751 4,480 -5.7%
Other Income 105 281 166.5%
Expenditure 3,754 3,493 -7.0%
Operating Profit (EBDIT) 997 988 -1.0%
Operating Profit Margin (%) 21.0% 22.0%  
Interest 41 3 -93.4%
Depreciation 246 294 19.6%
Profit before Tax 816 972 19.1%
Extraordinary items 60 50 -16.2%
Tax 126 196 55.5%
Profit after Tax/(Loss) 750 827 10.2%
Net profit margin (%) 15.8% 18.5%  
No. of Shares (eoy) (m) 21.6 21.6  
Diluted Earnings per share 34.7 38.2  
P/E (at current price)   14  

The sales figures in June '01 are however, not comparable as the previous year's figures included revenues from divested businesses such as manufacture of shampoos and Clearasil amounting to Rs 420 m. Excluding this, topline has actually grown by 3%. Strong competition from lower end brands has taken a toll on the company's volume growth.

PGHH has successfully improved its operating margins (OPM) by 1% in FY01. The company's margins are the highest amongst its peers in the sector. Its focus on value growth has enabled it to maintain its OPM on the higher level. Also, removal of excise duty on feminine care products in the Union Budget 2000-01, has contributed in boosting the margins.

Efficient working capital management has led to a decline in interest cost of the company by a significant 93% in FY01. PGHH's other income in FY01 grew by over 166%. The figure included proceeds from sale of some immovable properties at Mumbai. This company has repaid its debts with this additional inflow. Also, with no plans for further capacity addition, it has declared an extraordinary dividend of Rs 40 per share for the year. This would enhance its returns on capital employed from 39% in FY00 to about 48% in FY01.

At the current market price of Rs 530 PGHH is trading at a P/E of 14x and market cap to sales ratio of 2.6x on FY01 earnings. The stock is accorded lower valuations by the markets because of the company's dependence on two brands. P&G's (parent company) wholly owned subsidiary, P&G Home Products Ltd. has also raised concerns among the investors.

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