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P&G: A stable FY15 - Views on News from Equitymaster
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P&G: A stable FY15
Sep 2, 2015

Procter & Gamble Hygiene and Health Care Ltd. announced its fourth quarter results for FY2015 (June ending financial year). The company has reported a 15% YoY growth in sales and 19% YoY jump in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Revenues grow by 15% YoY during the quarter. Operating profit growth comes in at 9% YoY as margins contract by 1.5% YoY. Net profits up by 19% YoY due to a lower tax outgo.
  • Revenues for the full year FY15 rise by 14% YoY. Operating profits grow by 15% YoY. Net profits up by 15% YoY as well.
  • Procter & Gamble Hygiene & Healthcare (PGHH) has declared a dividend of Rs 30.25 per equity share of face value of Rs 10 each for the financial year ended June 2015.

Standalone financial Performance
Rs(m) 4QFY14 4QFY15 Change FY14 FY15 Change
Income 4,861 5,576 14.7% 20,509 23,338 13.8%
Expenditure 3,440 4,032 17.2% 16,303 18,494 13.4%
Operating profit (EBDITA) 1,421 1,544 8.7% 4,207 4,844 15.1%
EBDITA margin (%) 29.2% 27.7%   20.5% 20.8%  
Other income 204 188 -7.9% 802 746 -6.9%
Interest 52 3 -94.2% 54 57 6.1%
Depreciation 94 133 42.4% 352 525 49.3%
Profit before tax 1,480 1,596 7.8% 4,603 5,008 8.8%
Tax 581 524 -9.7% 1,583 1,547 -2.3%
Profit after tax/(loss) 899 1,071 19.1% 3,020 3,461 14.6%
Net profit margin (%) 18.5% 19.2%   14.7% 14.8%  
No. of shares (m)         32  
Diluted earnings per share (Rs)*         106.6  
Price to earnings ratio (x)*         56.8  
*(Trailing 12 month earnings)

What has driven performance in the quarter ended June 2015?
  • PGHH posted a 15% YoY increase in revenues led by both of the company's divisions - feminine hygiene and healthcare - during the quarter. Operating profit grew by a subdued 9% YoY in June 2015 quarter. Operating margins come in at 27.7% as compared to 29.2% in the corresponding quarter of previous year. Margin contraction was largely due to high advertisement and promotion spends (as a percentage of sales). Profits were up by 19% YoY led by a lower tax rate.

  • For full year FY15, the company's revenues and profits are up by about 14% YoY and 15% YoY respectively. Operating margins we stable, coming in at 20.8% as compared to 20.5% in FY14. Higher depreciation charges, coupled with lower other income led to a 9% YoY rise in profit before tax. However, a lower tax outgo in FY15 allowed the company to grow profits by 15% YoY for the full year.

What to expect?

P & G has ended FY15 on a stable note, with its operating performance being very similar to the previous year.

While we believe PGHH is a great business, which continues to enjoy strong growth prospects on the back of low penetration of feminine hygiene products and strong equity enjoyed in Vicks brand, the same cannot be said about its stock. At the current price of Rs 6,060, the stock is trading at 35 times our estimated FY17 earnings; this is despite assuming a two year annual earnings growth of as much as 26%. As the stock appears overpriced at current valuations, we believe the upsides seem capped and thus we reiterate our negative view on the stock.

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