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P&G: Foussed approach paying off

Oct 31, 2000

P&G Health & Hygiene, the 51% Indian arm of global FMCG major Procter & Gamble, has made a terrific start in its first quarter of FY01. Though the turnover was stagnant in value terms, the company's expenditure took a 3% drop. As a result, P&G's operating margins improved to 23.4%.

(Rs m) 1QFY00 1QFY01 Change FY00
Sales 1,193 1,201 0.7% 4,751
Other Income 2 14 683.3% 52
Expenditure 949 920 -3.0% 175
Operating Profit (EBDIT) 244 281 15.0% 4,576
Operating Profit Margin (%) 20.5% 23.4%   96.3%
Interest 11 1 -87.6% 2
Depreciation 58 73 26.7% 10
Profit before Tax 177 221 24.5% 74
Tax 28 35 27.4% 9
Profit after Tax/(Loss) 150 185 24.0% 65
Net profit margin (%) 12.5% 15.4%   1.4%
No. of Shares (eoy) (m) 21.6 21.6   21.6
Earnings per share* 27.6 34.3   3.0
Current P/e ratio   15.9    

The sales turnover though, is not comparable, as P&G discontinued shampoo manufacturing for its parent's 100% subsidiary P&G Home Products. If the impact of the shampoo manufacture revenues is removed, the sales growth amounts to around 14%.

A surge in its other income, coupled with a huge decline in its interest outgo helped P&G improve its 1QFY01 bottomline by 24% compared to the corresponding quarter in FY00.

P&G India has consciously focussed on becoming a two product company viz., Sanitary Napkins (Whisper) and anti-cold (Vicks). The company's products enjoy immense brand value. Unlike compatriot Hindustan Lever, P&G's strategy has revolved around premium positioning of both its product categories. In a sense, the company has been focussing on margins (value) rather than volumes.

The stock trades at Rs 547, a P/e multiple of 15.9 times its annualised FY01 expected earnings. The stock used to trade at a P/e ratio of 25-30 times, before the tech boom came.

Given the company's clear strategy on focusing on two products, as also its premium positioning, the company is better placed than most FMCG's to clock double digit growth figures both in its topline and bottomline in the medium term. In the long term however, P&G's two prduct focus might become a bane as competition picks up. There are also concerns regarding its parent's two 100% subsidiaries in India.

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