23 October 2019
3QFY20 Results Update | Sector: Consumer
P&G Hygiene and Healthcare
Estimate changes
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
PG IN
32
325.7 / 4.4
12700 / 8500
-15/10/13
77
CMP: INR10,034
TP: INR9,995 (0%)
Neutral
Lockdown leads to sales decline; profits in-line
While P&G Hygiene and Healthcare (P&GHH)’s operations in 3QFY20 were
affected by the COVID-19-led lockdown, its ability to arrest decline in
profitability is encouraging.
We believe the company’s portfolio is highly resilient and would bounce
back once normalcy returns.
Long-term prospects remain attractive on account of strong moats.
Maintain
Neutral.
P&GHH’s 3QFY20 sales declined 6.2% YoY to INR6.6b
(est. INR7.1b), with
EBITDA decreasing 3.6% YoY to INR1.4b (est. INR1.4b) and PBT coming in
flat YoY at INR1.4b (est. INR1.3b).
Adj. PAT grew 12.8% YoY to INR1b (est. INR990m), supported by a lower
corporate tax rate. Reported PAT came in at INR911m, which has been
adjusted for exceptional expenses.
Ad spends grew 6.4% YoY to INR747m, employee expenses 45.2% YoY to
INR502m, and other expenses 12.3% YoY to INR1.7b.
Gross margins expanded 900bp YoY to 66.6%.
As a percentage of sales, ad
spends rose 130bp YoY to 11.4%, employee costs 270bp YoY to 7.7%, and
other expenses 440bp YoY to 26.5%. This resulted in a 60bp expansion in
EBITDA margins to 21.1% (est. 19%) in 3QFY20.
The company reported impairment loss of INR139m on certain items in
Property, Plant, Equipment that had been classified as “Held for Sale”. We
have adjusted our 3QFY20 tax and PAT numbers for this exceptional expense.
9MFY20 sales/EBITDA/PAT grew +2.5%/-6.8%/+4.5% YoY.
The management had forecast high single-digit sales growth for the quarter
before the lockdown. However, the company’s operations have been
severely disrupted due to the lockdown.
The management further indicated in the near term, the company would
focus on scaling up its operations to maximize the availability of its products
to meet consumer needs, while following the health and safety guidelines
imposed by government authorities.
While near-term sales are likely to be impacted, P&GHH has a more
resilient portfolio, than that of peers, to withstand the COVID-19-related
disruption in the post lockdown phase. We maintain sales forecasts in FY21
and FY22 and sustained profitability improvement in recent quarters, with
normalizing ad-spends over the next couple of years resulting in an ~10%
EPS upgrade.
Although valuations are expensive at 52.9x FY22E EPS, implying near-term
upside is limited, two factors make P&GHH an attractive long-term core
holding: (a) huge category growth potential in the Feminine Hygiene
segment (~70% of sales) and potential for market share gains owing to its
considerable moats, and (b) potentially massive margin gains from
premiumization in Feminine Hygiene over the long term. Maintain
Neutral.
Financials & valuations (INR b)
Y/E March
2019 2020E 2021E 2022E
Sales
29.5 30.0 31.7 36.4
Sales Gr. (%)
20.0
1.7 5.7 14.8
EBITDA
6.1
6.1 7.0 8.3
Margins (%)
20.7 20.4 22.0 22.9
Adj. PAT
4.1
4.5 5.1 6.2
Adj. EPS (INR)
126.3 138.1 158.1 189.6
EPS Gr. (%)
7.3
9.3 14.4 19.9
BV/Sh.(INR)
280.1 322.9 372.0 430.8
Ratios
RoE (%)
47.9 45.9 45.6 47.3
RoCE (%)
50.4 48.3 47.7 49.4
Valuations
P/E (x)
79.4 72.6 63.5 52.9
P/BV (x)
35.8 31.1 27.0 23.3
EV/EBITDA (x)
52.6 51.7 45.0 37.3
Div. Yield (%)
1.0
1.0 1.1 1.3
Shareholding pattern (%)
As On
Mar-20 Dec-19
Promoter
70.6
70.6
DII
12.9
12.2
FII
2.8
3.3
Others
13.7
13.8
FII Includes depository receipts
Sales below expectations; EBITDA in-line
Highlights from management commentary
Mar-19
70.6
10.8
3.4
15.1
Valuation and view
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com); +91 22 6129 1547 |
Pooja Doshi
(Pooja.Doshi@MotilalOswal.com); +91 22 5036 2689
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.