P&G Hygiene and
Healthcare
BSE SENSEX
27,782
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
S&P CNX
8,573
PG IN
32.5
219.8 / 3.3
7,113 /5,171
7/-5/5
50
29.4
26 August 2016
4QFY16 Results Update | Sector: Consumer
CMP: INR6,772 TP: INR7,809 (+15%)
Sales disappoint, EBITDA and PAT well ahead of expectations
Buy
Financials & Valuations (INR b)
FY16 FY17E FY18E
Y/E June
Sales
24.8
29.1
35.0
EBITDA
6.0
6.7
8.3
Adj. PAT
4.2
4.6
5.6
Adj. EPS (INR)
130.3 142.7 173.5
EPS Gr. (%)
22.3
9.5
21.6
BV/Sh. (INR)
465.0 535.7 621.6
RoE (%)
30.9
28.6
30.0
RoCE (%)
31.2
28.8
30.2
P/E (x)
52.0
47.4
39.0
P/BV (x)
14.6
12.6
10.9
Estimate change
TP change
Rating change
4QFY16 sales came in flat YoY at INR5.58b (est. of INR6.19b).
EBITDA margin,
however, grew 70bp YoY to 28.4% – we had expected a 470bp YoY decline
given the high base. EBITDA was up 2.7% YoY to INR1.59b and PAT by 2.2% YoY
to INR1.09b, exceeding our expectation by 11% and 9%, respectively.
Healthcare sales disappoint again:
In our quarterly preview, we had pointed
out that healthcare had a good quarter in 4QFY15 (June year-end). We had
expected delayed monsoon in 4QFY16 to slow down healthcare sales growth,
but did not expect a sharp decline. While the press release clarified that
feminine hygiene sales grew in strong double-digits for the full year, this
segment is likely to have reported single-digit sales growth in 4QFY16.
Gross margins healthy, A&P declines:
Gross margins improved 210bp YoY to
66.6%, continuing the momentum seen this year. While gross margins are
seasonally high in the fourth quarter, 4QFY16 saw gross margins touching 24-
quarter high led by material costs decline of 6% YoY. After increasing sharply
by 40% YoY in 3QFY16, A&P fell 10% YoY in 4QFY16. Employee costs increased
sharply over an abnormally low base of 4QFY15 (second lowest in 24 quarters).
EBITDA margins rose 70bp YoY to 28.4%.
Full-year sales grew 6.5% YoY to INR23.3b.
While feminine hygiene segment
revenues (65% of revenues in FY15) reportedly grew in strong double-digits in
FY16, it was a washout year for healthcare (was up 17% in FY15) due to mild
winter and delayed rains. FY16 EBITDA grew 24.8% YoY to INR6b and PAT by
22% to INR4.3b. Cash grew 74% YoY to INR10b, mainly led by lower lending to
group companies and strong PAT growth. Considering this, dividend payout of
28% was particularly disappointing.
Valuation and view:
EPS forecasts for FY18 have been marginally raised by
1.4%. PGHH’s current P/E multiples of 39xFY18 are in line with other consumer
MNCs, despite its distinct advantages over peers, namely: (1) it is in a much
faster growing category and (2) there are high barriers to entry in its key
feminine hygiene segment. Its ongoing distribution expansion and unmatched
category development efforts should offer further support to growth. We
maintain 45x target multiple with a target price of INR7, 809 (INR7,690 earlier).
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

P&G Hygiene and Healthcare
Story in charts
Exhibit 1: Sales momentum hurt by extended summer
35.1
Sales (INR b)
31.2
21.3 20.0
6.0
14.9 17.0 12.8
10.9
14.7
3.8
10.7 10.5
Sales growth (%)
Exhibit 2: Gross margin increased by 210bp YoY
Gross margin (%)
0.1
4.2 4.9 5.7 5.0 4.9 5.8 6.4 5.6 5.6
7.1 6.1 5.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: A&P spends declined QoQ on absolute basis
A&P spends (INR b)
Exhibit 4: ….as well as on percentage to sales
A&P spends as % of sales
15.7
13.4
15.4
17.1 16.6
18.2
13.6
7.8
12.0
13.2
14.7
11.0
15.2
11.9
0.6 0.8 1.0 0.8 0.4 1.0 0.9 0.7 0.7 0.9 0.8 0.9 0.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Staff costs had a very low base in 4QFY15
Staff costs as % of sales
6.3
6.9
5.4
4.0
4.8
5.8
4.2
3.5
6.8
3.6
5.6
4.0 4.3
Exhibit 6: Royalty inching upwards
Royalty as % of sales
4.9
4.8
4.6 4.6 4.6
4.7 4.7
5.0 5.0 5.0 4.9
5.4
4.6
4.7
4.8
Source: Company, MOSL
Source: Company, MOSL
26 August 2016
2

P&G Hygiene and Healthcare
Story in charts
Exhibit 7: Other expenses to sales tends to be volatile
Other expenses as % of sales
20.3
14.2 15.3
16.3 16.0
12.2
67.4
Exhibit 8: EBITDA up 3% but better than expected….
EBITDA (INR b)
94.7
EBITDA growth (%)
68.4
1.3
7.5 1.3 1.2 1.5
22.5
12.8 8.7
8.5 2.7
0.8
33.3
1.0 2.2
1.6
14.9 15.7
18.0 17.2
10.8
18.8
15.9
17.9
58.6
66.3
46.2
0.7 0.7 1.0 1.1 1.4
Source: Company, MOSL
Source: Company, MOSL
Exhibit 9: …EBITDA margins expand 70bp YoY
EBITDA margin (%)
Exhibit 10: Tax rates inching up as expected
Tax rate (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: PAT growth was ahead of expectations
PAT (INR b)
73.4
47.1
0.1
21.0
55.0
41.8
12.2
18.4
0.6
0.9
0.9
7.6
19.1
1.1
13.5
0.7
1.5
PAT growth (%)
61.8
Exhibit 12: Net margins up 40bp YoY
PAT margin (%)
12.0
2.2
1.0
1.1
0.5 0.5 0.5 0.8 0.8 0.9
Source: Company, MOSL
Source: Company, MOSL
26 August 2016
3

P&G Hygiene and Healthcare
Financials and Valuations
Standalone - Income Statement
Y/E June
Income from Operations
Less: Excise Duty
Total Income from Operations
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
PBT after EO Exp.
Total Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY12
13,038
64
12,974
29.3
10,972
84.6
2,002
15.4
281
1,721
0
509
2,230
2,230
417
18.7
1,813
1,813
19.9
14.0
FY13
16,986
118
16,868
30.0
14,362
85.1
2,506
14.9
313
2,192
0
670
2,862
2,862
830
29.0
2,032
2,032
12.1
12.0
FY14
20,673
164
20,509
21.6
16,303
79.5
4,207
20.5
352
3,855
54
802
4,603
4,603
1,583
34.4
3,020
3,020
48.6
14.7
FY15
23,599
261
23,338
13.8
18,494
79.2
4,844
20.8
525
4,319
57
746
5,008
5,008
1,547
30.9
3,461
3,461
14.6
14.8
FY16
25,405
564
24,842
6.4
18,798
75.7
6,044
24.3
521
5,523
40
886
6,368
6,368
2,133
33.5
4,235
4,235
22.3
17.0
FY17E
30,125
1,054
29,072
17.0
22,327
76.8
6,745
23.2
604
6,141
35
869
6,975
6,975
2,337
33.5
4,638
4,638
9.5
16.0
(INR Million)
FY18E
36,341
1,344
34,997
20.4
26,703
76.3
8,294
23.7
728
7,566
35
949
8,480
8,480
2,841
33.5
5,640
5,640
21.6
16.1
Standalone - Balance Sheet
Y/E June
Equity Share Capital
Total Reserves
Net Worth
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY12
325
6,646
6,970
-15
6,955
3,459
1,475
1,984
289
8,697
923
482
1,824
5,469
4,015
3,097
918
4,682
6,955
FY13
325
7,729
8,053
-30
8,024
3,775
1,626
2,149
412
9,903
1,189
809
1,660
6,245
4,440
2,895
1,545
5,463
8,024
FY14
325
9,704
10,029
-72
9,957
4,281
1,886
2,395
982
11,631
1,185
861
2,691
6,894
5,050
2,934
2,117
6,581
9,957
FY15
325
11,962
12,287
-40
12,247
5,237
2,149
3,088
390
15,960
1,191
1,139
6,186
7,444
7,190
4,570
2,621
8,770
12,247
FY16
325
14,770
15,094
-44
15,051
5,776
2,670
3,106
100
19,059
1,157
1,157
10,998
5,747
7,215
4,282
2,933
11,845
15,051
(INR Million)
FY17E
325
17,064
17,388
-48
17,340
6,642
3,274
3,369
434
22,482
1,354
1,274
14,102
5,751
8,944
4,943
4,001
13,538
17,340
FY18E
325
19,852
20,177
-53
20,124
7,754
4,002
3,753
422
26,559
1,630
1,534
16,889
6,506
10,609
5,937
4,673
15,950
20,124
26 August 2016
4

P&G Hygiene and Healthcare
Financials and Valuations
Ratios
Y/E June
Basic (INR)
EPS
Cash EPS
BV/Share
DPS (incl tax)
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
ROIC
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Debt/Equity
FY12
55.8
64.5
214.7
26.1
46.8
FY13
62.5
72.3
248.1
29.2
46.7
FY14
92.9
103.9
309.0
32.2
34.6
FY15
106.5
122.8
378.5
36.4
34.1
63.6
55.1
17.9
9.2
44.1
0.5
144.1
27.9
27.9
29.5
1.9
22
11
58
0.0
27.1
27.1
28.8
2.1
23
14
50
0.0
33.4
34.0
41.3
2.1
21
15
39
0.0
31.0
31.5
49.9
1.9
19
16
47
0.0
FY16
130.3
146.5
465.0
44.0
33.7
52.0
46.2
14.6
8.4
34.6
0.6
192.2
30.9
31.2
76.3
1.7
17
17
49
0.0
FY17E
142.7
161.5
535.7
72.2
50.6
47.4
41.9
12.6
7.1
30.5
1.1
167.9
28.6
28.8
120.9
1.7
17
16
49
0.0
FY18E
173.5
196.2
621.6
87.8
50.6
39.0
34.5
10.9
5.8
24.5
1.3
173.7
30.0
30.2
179.2
1.7
17
16
50
0.0
Standalone - Cash Flow Statement
Y/E June
Reported profit after tax
Depreciation
Provisions
Deferred Taxes
(Inc)/Dec in WC
CF from Operations
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
CF from Investments
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
E: MOSL Estimates
FY12
1,813
250
3
-43
-107
1,916
1,916
-543
1,373
-543
-849
-849
524
1,300
1,824
FY13
2,032
151
627
-14
-1,571
1,225
1,225
-439
786
-439
-949
-949
-163
1,824
1,661
FY14
3,020
260
571
-42
-659
3,150
3,150
-1,075
2,075
-1,075
-1,044
-1,044
1,031
1,661
2,691
FY15
3,461
263
504
32
802
5,063
5,041
-364
4,677
-364
-1,182
-1,182
3,495
2,691
6,186
FY16
4,235
521
313
-4
1,425
6,490
6,490
-250
6,240
-250
-1,427
-1,427
4,812
6,186
10,999
(INR Million)
FY17E
4,638
604
1,068
-4
343
6,649
6,649
-1,200
5,449
-1,200
-2,345
-2,345
3,104
10,999
14,102
FY18E
5,640
728
672
-5
-296
6,738
6,738
-1,100
5,638
-1,100
-2,851
-2,851
2,787
14,102
16,890
26 August 2016
5

P&G Hygiene and Healthcare
Corporate profile
Company description
Exhibit 1: Sensex rebased
Procter & Gamble Hygiene & Health Care Limited
(PGHH), a 71% subsidiary of P&G, manufactures,
distributes and markets three major brands in India
– Whisper (sanitary napkins), Vicks (balm, cough
drops and tablets), and Old Spice (aftershave lotion
and deodorants). Whisper is the market leader,
with ~56% share Indian Feminine Hygiene market,
and is likely to contribute ~65% of sales in FY16
(June year-end). Vicks is also the market leader,
with over 30% share in the cough, Cold and Hay
Fever segment of OTC (over the counter) products.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
70.6
9.7
3.4
16.3
Mar-16
70.6
10.1
3.3
16.0
Jun-15
70.6
10.7
2.6
16.1
Source: Capitaline
Exhibit 3: Top holders
Holder Name
General Insurance Corporation Of India
% Holding
1.6
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
R A Shah
AI Rajwani
Preeti Bishnoi
Designation
Chairman
Managing Director
Company Secretary
Exhibit 5: Directors
Name
R A Shah*
AI Rajwani
A K Gupta*
Bansi S Mehta*
Name
Karthik Natarajan
Pramod Agarwal
Shailymanyu Singh
Sonali Dhawan
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Deloitte Haskins & Sells LLP
Dholakia & Associates LLP
Ashwin Solanki & Associates
Type
Statutory
Secretarial Audit
Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
MOSL
forecast
142.7
173.5
Consensus
forecast
-
-
Variation
(%)
-
-
Source: Bloomberg
FY17
FY18
26 August 2016
6

P&G Hygiene and Healthcare
NOTES
26 August 2016
7

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Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee -
P&G HYGIENE AND HEALTHCARE
No
No
P&G Hygiene and Healthcare
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This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures
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Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is
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the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
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Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
(+65) 68189233 / 65249115
26 August 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
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