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P&G: FY14 ends on a steep jump in profits
Sep 4, 2014

Procter & Gamble Hygiene and Health Care Ltd. has announced its fourth quarter results for 2013-2014 (4QFY14) (June ending company). The company has reported a 14% YoY growth in sales and 73% YoY jump in net profits. Here is our analysis of the results.

Performance summary
  • Revenues grew by 15% YoY in 4QFY14 led by double-digit growth in both feminine hygiene and health care businesses. For FY14, the topline increased by 21.6% YoY aided by 24% growth in feminine hygiene sales and 11% rise in healthcare business sales.
  • Operating margin expanded by 12% YoY in 4QFY14 on the back of over 30% reduction in each of the staff costs and ad-spends coupled with lower input costs. For FY14, the operating margin increased by 5.7% YoY.
  • Net profit surged by 73% YoY in 4QFY14 on a 95% jump in operating profits. For FY14, net profits were up a sharp 48.6% YoY.
  • Procter & Gamble Hygiene & Healthcare (PGHH) has declared a dividend of Rs 27.50 per equity share of face value of Rs 10 each for the financial year ended June 2014.

Financial Snapshot
Rs(m) 4QFY13 4QFY14 Change FY13 FY14 Change
Income 4,231 4,861 14.9% 16868 20509 21.6%
Expenditure 3,501 3,440 -1.7% 14362 16303 13.5%
Operating profit (EBDITA) 730 1,421 94.7% 2,506 4,207 67.9%
EBDITA margin (%) 17.2% 29.2% 12.0% 14.9% 20.5% 5.7%
Other income 135 204 51.4% 669.6 802 19.8%
Interest 0 52   0.1 53.9  
Depreciation 92 94 1.8% 313 352 12.4%
Profit before tax 773 1,480 91.5% 2,862 4,603 60.8%
Tax 254 581 128.7% 829.8 1583 90.8%
Profit after tax/(loss) 519 899 73.4% 2,032 3,020 48.6%
Net profit margin (%) 12.3% 18.5% 6.2% 12.0% 14.7% 2.7%
No. of shares (m)         32  
Diluted earnings per share (Rs)*         93.0  
Price to earnings ratio (x)*         56.3  
*trailing twelve months

What has driven performance in 4QFY14?
  • Backed by double-digit growth in both feminine hygiene and healthcare business segments, PGHH posted a 15% YoY increase in revenues.

  • Aided by reduction in staff costs and ad-spends coupled with lower cost of goods sold, the company's operating profits saw a steep jump of 95% YoY during the quarter. The operating margin expanded by 12% YoY during the quarter.

  • At the net level, margin expanded by a comparatively lower 6.2% due a sharp rise in tax outgo. The tax incidence rose to 39% in 4QFY14 from 33% in 4QFY13. The other income earned during the quarter increased by 51.4% YoY.

    Cost break-up
    As a % of net sales 4QFY13 4QFY14 Change in basis points
    Total Cost of goods 42.0% 35.4% -6.6%
    Staff Cost 6.9% 4.2% -2.8%
    Advertising 13.4% 7.8% -5.6%
    Royalty Expense 4.7% 4.6% -0.1%
    Other Expenditure 15.7% 18.8% 3.1%
What to expect?
P & G has ended FY14 on a strong note with a huge jump in profit margins. The company continues to enjoy strong growth prospects on the back of low penetration of feminine hygiene products and strong equity enjoyed in Vicks brand.

However the stock has already run up a lot. At a price of Rs. 5240, the stock is trading at 31 times its FY17 earnings. As the stock appears overpriced at current valuations, we reiterate a SELL on the stock.

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