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P&G: Core delivery - Views on News from Equitymaster
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P&G: Core delivery
Sep 2, 2008

Performance summary
  • Topline jumps 19% YoY on account of double-digit growth in its core portfolio.
  • The operating margins for 4QFY08 are higher by 0.9%, while margins for the full year touch 27.5% on account of lower raw material costs.
  • Net profits for the quarter are up 84% YoY, while a 43% YoY jump is seen in the profits for FY08. Higher margins and other income coupled with lower tax rates lead to the strong growth.

    (Rsm) 4QFY07 4QFY08 Change FY07 FY08 Change
    Net Sales 1,264 1,508 19.3% 5,404 6,450 19.4%
    Expenditure 1,066 1,259 18.1% 4,003 4,674 16.8%
    Operating Profit (EBDITA) 198 250 25.9% 1,401 1,776 26.8%
    Operating Profit margin (%) 15.7% 16.5%   25.9% 27.5%  
    Other Income 36 43 19.8% 144 151 5.1%
    Interest - (0)   0 0  
    Depreciation 24 32 31.4% 90 121 35.0%
    Profit before Tax 210 261 24.3% 1,455 1,806 24.1%
    Tax 83 28 -66.1% 557 492 -11.7%
    Profit after Tax/(Loss) 127 233 83.9% 898 1,314 46.3%
    Net profit margin (%) 10.0% 15.4%   16.6% 20.4%  
    No. of Shares (m) 32.5 32.5   32.5 32.5  
    Diluted Earnings per share (Rs)*         40.4  
    P/E Ratio (x)*         18.9  
    *(trailing 12 months)

    What has driven performance in FY08?
    • P&G reported a topline growth of 19% YoY for both the periods under consideration. The healthcare business grew by a strong 16% YoY driven by 25% YoY growth in Vicks Vaporub and Vicks Cough drops. The Feminine Hygiene category reported a 20% YoY and 21% YoY growth for 4QFY08 and FY08 respectively owing to a 55% YoY growth in the mid-tier market segment. The sales are higher than our estimates by 2%.

      Cost break-up
      As a % of net sales 4QFY07 4QFY08 FY07 FY08
      Total Cost of goods 36.0% 27.4% 27.5% 26.9%
      Staff Cost 8.0% 10.7% 5.4% 6.2%
      Advertising 8.1% 13.2% 10.7% 10.7%
      Other Expenditure 32.2% 32.1% 30.4% 28.7%

    • The operating margins for 4QFY08 were higher by 0.9%, while margins for the full year touched 27.5%, higher by 160 basis points (1.6%). While raw material and other expenses (as percenage of sales) were lower, staff costs were higher. The margins are marginally lower than our estimates.

    • Net profits for the quarter were up 84% YoY, while a 43% YoY jump was seen in the profits for FY08. Higher margins and other income coupled with lower tax rates led to the strong growth. The tax rate for FY08 was 27% as compared to 38% in FY07 on account of tax incentives for manufacturing undertaken by the company. The profits are in line with our expectations.

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