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P&G: Focus paying off

Nov 13, 2001

P&G Hygiene & Healthcare Limited (P&G), continues to face difficult market conditions due to the economic sluggishness. In the recently declared September quarter results the company recorded a 3% decline in topline YoY.

(Rs m)1QFY011QFY02Change
Net Sales1,2011,161-3.3%
Other Income1432127.7%
Operating Profit (EBDIT)2812934.1%
Operating Profit Margin (%)23.4%25.2% 
Interest 10 
Profit before Tax22126118.4%
Profit after Tax/(Loss)1851965.8%
Net profit margin (%)15.4%16.9% 
No. of Shares (eoy) (m)21.621.6 
Earnings per share*34.336.2 
Current P/e ratio 11.7 

But the performance was not all that bad considering that the company managed to control costs and thus increased its operating margins by 180 basis points to 25.2%. P&G's staff cost declined over 8% YoY and its raw material costs were also pruned by nearly 8%.

Cost break-up
(Rs m)1QFY011QFY02Change
Raw material cost437403-7.8%
Staff cost9385-8.3%
Sales tax/excise1071103.5%
Other expenses284270-4.7%
Total expenditure920868-5.6%

Lower depreciation and zero interest saw P&G's profit before tax improve by over 18%. However, higher taxes as a result of new deffered tax guidelines saw net profit grow marginally by 6%. But on the whole it was a satisfactory performance considering the difficult market conditions and the company's two-product strategy (Vicks and Whisper).

At the current price of Rs 424 the stock trades at a P/E of 13x our projected FY02 earnings estimates. Given the company's focus on operational efficiencies, the valuation is on the lower side. This is probably because of the company's two product dependence as well as concerns regarding the parent's 100% subsidiaries. But apart from this, the company is likely to be one of the key players in both anti-cold and feminine hygiene segment. The company's dividend payout is also attractive.

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