In the US last night, consumer products major, Procter & Gamble, raised its earnings estimates for the December quarter led by improved operating profit margins. Its Indian subsidiary, P&G Hygiene and Healthcare (PGHH), meanwhile, is countering difficult market conditions. Let's have a look.
PGHH is a 65% subsidiary of the US$ 38 bn FMCG major Procter & Gamble, USA. The Indian subsidiary is a focused two-product company with market leadership in the anti-cold healthcare (Vicks) segment and feminine care (Whisper sanitary napkins). PGHH, being the least cost producer of Vicks Vaporub among P&G facilities worldwide, is also the sourcing base for all P&G subsidiaries in Asia. The parent also has two other subsidiaries in India which focus on personal wash and other categories.
Given PGHH’s clear strategy on focusing on two products with premium positioning, the company in the past has continually clocked double-digit growth figures both in topline and bottomline. However, increasing competition is the sanitary napkins market as well as in the anti-cold segment has taken a toll on the company. In FY02, the company finished with a measly 0.4% topline growth, as it has been forced to either reduce its premium on products or offer schemes to boost sales. P&G is also not as strong as the Unilever subsidiary, HLL, in distribution. Of course, both its products have an urban appeal and to that extent distribution strength is not comparable.
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In the recently concluded September ended first quarter of FY03, PGHH reported a staid 1.8% topline growth, which reflects the continual pressure the company is encountering. Even at the current juncture, a campaign which gives 20% off on 'Whisper' is running. This itself indicates that the pressure on the company to expand its market and counter the competition.
At the current price of Rs 377, the stock trades at 10.4x our expected FY03 earnings and a market cap to sales of 1.9x FY03E. Though the valuation of the company is on the lower side of the FMCG spectrum, the parent's other Indian subsidiaries, the company's niche presence and continuing pricing pressure on its products are the negating factors for investors. Nevertheless, on the positive side, the company is a good dividend payer (it has paid Rs 40 per share as dividend twice in the last four years). Also, the parent may opt to go in for a buyback if the valuations continue to remain sluggish.
Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.
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