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P&G: High growth potential - Views on News from Equitymaster
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P&G: High growth potential
Aug 28, 2009

Performance summary
  • Topline grew by 20% YoY during 4QFY09 and FY09 reflection the strength of its brands
  • Operating (EBITDA) margins grew from 17% in 4QFY08 to 36% in 4QFY09. This is on account of fall in all operating costs. Operating margins for the year stood at 27%, down marginally from 27.5% on account of increase in cost of goods and advertising.
  • Bottomline grew by 106% YoY for 4QFY09 mainly on account of increase in sales and lower operating costs. The growth would have been higher but for increase in tax expenses. Net profit for the fiscal year grew by 36% YoY, mainly on account of higher sales and higher other income.


Standalone sales
(Rsm) 4QFY08 4QFY09 Change FY08 FY09 Change
Net Sales 1,508 1,815 20.3% 6,450 7,742 20.0%
Expenditure 1,259 1,163 -7.6% 4,674 5,655 21.0%
Operating Profit (EBDITA) 250 652 161.1% 1,776 2,087 17.5%
Operating Profit margin (%) 16.5% 35.9%   27.5% 27.0%  
Other Income 43 62 44.1% 151 373 147.0%
Interest - -   - -  
Depreciation 32 41 27.7% 121 144 18.6%
Profit before Tax 261 673 158.1% 1,806 2,317 28.3%
Tax 28 109 286.5% 492 528 7.4%
Profit after Tax/(Loss) 232 478 105.9% 1,314 1,789 36.1%
Net profit margin (%) 15.4% 26.4%   20.4% 23.1%  
No. of Shares (m) 32.5 32.5   32.5 32.5  
Diluted Earnings per share(Rs)*         55.1  
P/E Ratio (x)*         19.4  
* Trailing 12 months

What has driven performance in 4QFY09?
  • Sales grew by 20% YoY for 4QFY09 on the back of strong growth in Feminine Hygiene segment. The sales growth for the year was also 20% higher than our full year estimates. This growth has come on the back of strong sales in Feminine Hygiene and Vicks, expansion in distribution network backed by increase in advertisement. Sales of Feminine Hygiene grew by 26% YoY to Rs.4.3 bn for FY09 while Vicks franchisee registered a double digit growth for the year.

    Cost break-up
    As a % of net sales 4QFY08 4QFY09 FY08 FY09
    Total Cost of goods 27.4% 28.5% 26.9% 30.0%
    Staff Cost 10.7% 1.0% 6.2% 4.5%
    Advertising 13.2% 8.9% 10.7% 11.6%
    Other Expenditure 32.1% 25.6% 28.7% 27.0%

  • Operating Income (EBITDA) increased by 161% YoY for 4QFY09 due to fall in all operating expenses. Employee costs fell sharply by 88% due to write back of gratuity obligation. This expense would be one time in nature. Operating income for the year increased by 18% YoY being impacted by higher raw material and advertisement expenses. There would have been a further impact had the company not written back the gratuity expenses.

  • Net income grew by 106% YoY for 4QFY09 on the back of higher sales and saving on operating costs. However, it was impacted by higher tax expenses. The bottomline for the year grew by 36% on the back of higher sales for the year and other income. The net profit would have been higher but for higher raw material and advertisement costs.

What to expect?
At the current market price of Rs.1068, the stock is trading at a multiple of 20 times our estimated earnings for FY11. The company has performed much better than we estimated. This was due to higher growth in Feminine Hygiene products. The company has high growth potential due to low penetration of this product. We will review this company and present our updated analysis.

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