MOSL: P&G HYGIENE AND HEALTHCARE (BUY)-Topline momentum healthy; increase in ad spends affects quarterly margin
P&G HYGIENE AND HEALTHCARE: Topline momentum healthy; increase in ad spends affects quarterly margin
(PG IN, Mkt Cap USD5.7b, CMP INR13113, TP INR15530, 18% Upside, Buy)
- P&G Hygiene and Healthcare (PGHH) ended FY21 (June year-end company) with 19.1% sales growth - this is the second year in the preceding three years that it has reported topline growth of over 19%. Thus, after losing momentum in the three years between FY16 and FY18, after the CEO change, the company seems to be back at the 19-20% topline CAGR trajectory seen over FY08-15. For a non-discretionary company, this is very strong topline momentum. With only ~20% penetration in feminine hygiene products (~67% of PGHH FY20 sales), coupled with dominant market leadership and considerable moats, the growth opportunity remains immense.
- 4QFY21 saw revival in sales momentum (+24% YoY), following a small blip in 3QFY21, after strong growth in 1HYF21 (18.5% growth). Gross margins were also higher v/s expectations. However, advertising spends skyrocketed 4.7x YoY during the quarter, leading to the EBITDA and PAT misses. As a result of the very high ad spends in 4QFY21, ad spends as a percentage of sales were up to 14.6% in FY21 v/s 10.9% in FY20.
- Operating leverage, led by healthy sales growth and the relative normalization of ad spends, is likely to lead to healthy margin improvement going forward. This would bolster earnings growth in what is an already strong topline growth story. Maintain Buy.
Procter & Gamble Hygiene and Health Care Limited is an India-based company, which is engaged in the manufacturing and selling of branded packaged fast moving consumer goods in the femcare and healthcare businesses. The Company offers ayurvedic products and sanitary napkins. The Company is involved in manufacturing, trading and marketing of health and hygiene products. The Company's brands include Ambi Pur, Ariel, Duracell, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, Tide, Vicks, Wella and Whisper. The Company's products include ointments and creams, cough drops, tablets, personal products and toilet preparations, among others. The Company's products are sold through retail operations, including mass merchandisers, grocery stores, membership club stores, drug stores, department stores and high frequency stores. The Company has its manufacturing locations at Goa and Baddi in Himachal Pradesh, apart from third-party manufacturing locations spread across India.
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