10 November 2020
2QFY21 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
368.2 / 4.5
12450 / 8500
7/-24/-8
77
CMP: INR11,344
TP: INR11,700 (+3%)
Neutral
Stellar performance; Beat on all fronts
P&G Hygiene and Healthcare (PGHH) reported a surprisingly strong 18.5%
sales growth in 1QFY21 (June year-end) in a difficult operating environment.
Management’s statement in the press release was also encouraging. The
press release stated that growth was driven by the Feminine Hygiene
segment (67% of FY20 sales), which grew in double-digits (in our view over
20%) compared to the Healthcare segment, which grew in high single-digits.
After ~25% growth in the Feminine Hygiene segment in FY19 (and ~20%
overall sales growth), this segment had reported flattish growth in FY20 as
highlighted in the annual report
note
released last week.
Adjusted for one-offs (amounts and cost heads not shared separately),
management stated that comparable earnings growth for the quarter was
~25% v/s reported earnings growth of 86%, which indicates that EBITDA
margins while up 130bp YoY, were in line with expectations.
While the structural opportunity remains attractive in both the Feminine
Hygiene and Healthcare segments, valuations are fair at 52x FY22E EPS
(June year-end). Maintain
Neutral.
1QFY21 sales/EBITDA/PBT/adj. PAT grew 18.5%/25.8%/25%/25.3% YoY to
INR10.1b/INR2.3b/INR2.3b/INR1.7b (v/s est. INR8.9b/INR2b/INR2b
INR1.5b).
While management has not provided specifics of one-time items, they have
stated that adj. PAT growth for 1QFY21 was up 25%. We have made
adjustments to the figures mentioned above based on our assumptions.
Ad spends declined 13.7% YoY to INR902m, employee expenses grew 46.1%
YoY to INR615m, while other expenses (adjusted) rose 49.9% YoY to
INR2.9b.
Gross margins expanded 510bp YoY to 66% (v/s est. 61%).
As % of sales, ad spends declined by 330bp YoY to 8.9%, employee costs
rose by 120bp YoY to 6.1% and other expenses were up by 590bp YoY to
28.3%, leading to a 130bp expansion in EBITDA margins to 22.7% (v/s est.
22.9%).
Feminine care business delivered double-digit sales growth, while
Healthcare business sales grew in high single-digits during 1QFY21.
The company’s production and services are back to pre-COVID levels.
Changes to the model have led to 4.8%/9.5% increase in EPS for FY21/FY22E
We are still assuming 17.1% sales growth for the year despite 18.5% growth
in 1QFY21 and weaker base (v/s 1QFY21) as we await more evidence of the
sustenance of strong top line growth witnessed in 1QFY21.
Financials & valuations (INR b)
Y/E March
2020 2021E 2022E
Sales
30.0 35.2 40.7
Sales Gr. (%)
1.9 17.1 15.9
EBITDA
6.2
7.7
9.6
Margins (%)
20.6 22.0 23.5
Adj. PAT
4.4
5.7
7.1
Adj. EPS (INR)
136.5 175.1 218.0
EPS Gr. (%)
8.0 28.3 24.5
BV/Sh.(INR)
356.7 394.7 438.3
Ratios
RoE (%)
42.9 46.7 52.4
RoCE (%)
44.5 48.2 54.0
Valuations
P/E (x)
83.1 64.8 52.0
P/BV (x)
31.8 28.7 25.9
EV/EBITDA (x)
58.2 45.7 36.6
Div. Yield (%)
0.9
1.3
1.5
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
70.6
70.6
DII
13.5
13.2
FII
2.5
2.6
Others
13.4
13.6
FII Includes depository receipts
Sales above expectations; Margins mostly in line
Sep-19
70.6
12.1
3.4
13.9
Highlights from management commentary
Valuation and view
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@MotilalOswal.com)
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.