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P&G: The brand push - Views on News from Equitymaster
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P&G: The brand push
Nov 3, 2008

Performance summary
  • Topline jumps 25% YoY on account of double-digit growth in its core portfolio.

  • Margins decline by 0.9% YoY on the back of higher expenses.

  • Bottomline jumps 43% YoY mainly on account of stable margins, higher other income and lower tax rates.



(Rs m) 1QFY08 1QFY09 Change
Net Sales 1,514 1,888 24.8%
Expenditure 1,035 1,308 26.3%
Operating Profit (EBDITA) 478 581 21.4%
Operating Profit margin (%) 31.6% 30.7%  
Other Income 43 61 41.9%
Interest - - -
Depreciation 25 32 27.1%
Profit before Tax 496 610 22.8%
Tax 151 118 -22.0%
Profit after Tax/(Loss) 345 492 42.5%
Net profit margin (%) 22.8% 26.0%  
No. of Shares (m) 32.5 32.5  
Diluted Earnings per share (Rs)*   44.9  
P/E Ratio (x)*   16.6  

What has driven performance in 1QFY09?
  • P&G reported a topline growth of 24.8% YoY during 1QFY09. Led by strong growth in Vicks, the health care business notched up 14% YoY jump in sales. Furthermore, a 50% YoY growth in ‘Whisper Choice’ coupled with 34% YoY growth in ‘Whisper Ultra’ led to a 32% YoY increase in feminine hygiene segment. Higher brand building, increasing penetration and distribution levels have aided the company’s strong performance.

  • The operating margins declined marginally by 0.9%. Raw material costs were higher by 45% YoY, while labour and ad expenses increased by 25% YoY and 40% YoY respectively. However, lower other expenses as a percent of sales restricted the fall. The company continues to invest in brand building activities to increase awareness and penetration.

    Cost break-up
    As a % of net sales 1QFY08 1QFY09
    Total Cost of goods 25.8% 29.8%
    Staff Cost 5.8% 5.9%
    Advertising 8.4% 9.5%
    Other Expenditure 28.3% 24.1%

  • The bottomline jumped 43% YoY mainly on account of stable margins, higher other income and lower tax rates. The tax rate for 1QFY09 was 19.4% as compared to 30.5% in 1QFY08 on account of tax incentives for manufacturing undertaken by the company.

What to expect?
    At the current price of Rs 746, the stock is trading at a price-to-earnings multiple of 13.6 times our FY11E estimates. The company has continued with the expansion of capacities for manufacturing feminine products at its Goa plant and has made a further capital investment in its two manufacturing units at Baddi in Himachal Pradesh. It is also planning to launch personal health care and feminine care products developed by its parent company in India. Considering the growth potential and a focused strategy backed by strong brands, we have a positive view on its future performance.

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