MOSL: P&G HYGIENE AND HEALTHCARE (Neutral)-Sales momentum intact, but a big miss on margins
P&G HYGIENE AND HEALTHCARE: Sales momentum intact, but a big miss on margins
(PG IN, Mkt Cap USD4.6b, CMP INR10288, TP INR9880, 4% Downside, Neutral)
- Net sales grew 21.5% YoY to INR6.4b (our estimate: INR6b) in 4QFY19 (FY ending June) - the fourth straight quarter of extremely healthy sales growth. Even adjusted for the GST effect on sanitary napkins (which optically inflates sales but has an adverse effect on operating costs), comparable growth stands healthy at 12% YoY for 4QFY19 and 14% YoY for FY19. EBITDA, however, was down 22.8% YoY to INR648m (our estimate: INR1.2b). Adj. PAT increased 36.5% YoY to INR608m (our estimate: INR795m), led by tax write-back.
- Gross margin contracted 530bp YoY to 59.3% (our estimate:4%). EBITDA margin too shrank 580bp YoY to 10.2% (our estimate: 20.2%). Ad spends were down 210bp YoY (off an extremely high base of 4QFY18), but other expenses were up by 330bp YoY. The sharp increase in other expenses (for which no explanations were provided) is surprising, given that it too has come off a very high base (+630bp YoY in 4QFY18).
- FY19 performance: Net sales were up by 20% to INR29.5b. EBITDA declined 3% to INR6.1b, while adj. PAT grew 11.9% to INR4.2b.
- Balance sheet for the year: A three-day increase in average inventory and a one-day increase in average trade receivables were more than offset by an eight-day rise in average creditors, pushing net working capital further into the negative. Moreover, there is no apparent increase in loans.
- Valuation and view: Margins have remained volatile over the past few years, but sales growth has revived significantly due to distribution expansion and sharp ad spends in the preceding quarters. While the structural growth opportunity in the feminine hygiene segment (~70% of sales) remains very promising, valuations of 52.1x FY21E EPS do not leave much room for an upside. Maintain Neutral.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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