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
448.3 / 6.1
14100 / 9700
13/17/-18
107
5 May 2021
3QFY21 Results Update | Sector: Consumer
CMP: INR13,811
TP: INR15,900 (+15%)
Buy
Topline below our expectations; increase in ad spends augurs well
Financials & valuations (INR b)
Y/E June
2020 2021E 2022E 2023E
Sales
30.0 34.9 41.1 49.6
Sales Gr. (%)
1.9 16.4 17.6 20.7
EBITDA
6.2
7.4
9.9 12.5
Margins (%)
20.6 21.1 24.0 25.2
Adj. PAT
4.4
5.4
7.3
9.4
Adj. EPS (INR)
136.5 166.8 225.8 288.3
EPS Gr. (%)
5.8 22.2 35.3 27.7
BV/Sh.(INR)
356.7 259.8 304.9 362.6
Ratios
RoE (%)
42.9 54.1 80.0 86.4
RoCE (%)
44.5 56.4 83.4 89.8
Valuations
P/E (x)
101.2 82.8 61.2 47.9
P/BV (x)
38.7 53.2 45.3 38.1
EV/EBITDA (x)
71.1 60.0 44.7 35.1
Div. Yield (%)
0.8
1.7
1.3
1.7
Shareholding pattern (%)
As On
Mar-21 Dec-20
Promoter
70.6
70.6
DII
13.5
13.5
FII
2.5
2.5
Others
13.3
13.4
FII Includes depository receipts
P&G Hygiene & Health Care’s (PGHH) 3QFY21 sales growth, while healthy at
15.8% YoY, was lower than our expectations, considering: a) the strong
momentum in recent quarters; and b) a favorable base, with a 6.2% sales
decline in 3QFY20 (June year-ending company).
There was a steep increase of 73% YoY in advertising spends, translating to
ad spends coming in at 17.1% of sales in 3QFY21, much higher than the
usual quarterly levels of 9-12% of sales. With gross margin actually above
expectations (up 20bp YoY v/s our expectation of a 160bp YoY decline), high
ad spends was the key reason for the miss on our EBITDA margin forecasts.
The increased ad spends augur well for maintaining the sales growth
momentum seen in recent quarters.
The special dividend of INR150 per share is encouraging. Along with our
forecast of 80% dividend payout in coming years, we believe special
dividends will be an intermittent feature of the business every 2-3 years,
given the healthy cash generation. This also elevates return ratios.
Valuations at 47.9x FY23E EPS are not cheap, but best-of-breed structural
earnings growth potential and improving RoEs lead us to maintain our
BUY
rating.
Sales disappoint, margin came in lower on increased ad spends
Mar-20
70.6
12.9
2.8
13.7
Sales in 3QFY21 grew 15.8% YoY to INR7.6b
(v/s our estimate of INR8.2b),
with EBITDA (adjusted) fell 1.5% to INR1.4b (v/s our expectation of INR2b),
PBT (adjusted) declined 1.4% to INR1.4b (v/s our estimate of INR1.9b), and
adjusted PAT grew 2.6% to INR1b (v/s our expectation of INR1.5b).
Reported PAT grew 7.9% to INR983m.
During 3QFY21, non-current assets held for sale were fully impaired as
PGHH was unable to dispose of these assets. Consequently, an impairment
loss of INR76.4m has been recognized.
Gross margin expanded 20bp YoY to 66.8% (v/s our estimate of 65%).
Ad spends grew sharply (73.4% YoY) to INR1.3b, employee expenses grew
13.5% to INR570m, while other expenses (adjusted) rose 6.4% to INR1.8b.
As a percentage of sales, employee costs/other expenses (adjusted) fell
20bp/210bp YoY to 7.5%/24.3%. Ad spends grew 570bp YoY to 17.1%,
leading to a 320bp contraction in EBITDA margin to 17.9% (v/s our estimate
of 24.1%) in 3QFY21. In 9MFY21, ad spends were up 14.3% YoY and stood at
11.8% of sales, which is slightly elevated when compared to the last three
years, where they have been in the 10-11% range.
Sales/EBITDA/adjusted PAT grew 17.7%/22.7%/25.8% YoY in 9MFY21.
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research Analyst: Dhairya Dhruv
(Dhairya.Dhruv@MotilalOswal.com)/Kaiwan
Jal Olia
(kaiwan.o@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.