P&G Hygiene and
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
23 August 2017
4QFY17 Results Update | Sector: Consumer
CMP: INR8,155 TP: INR8,800 (+8%)
Downgrade to Neutral
GST led destocking impacts sales
Downgrading to Neutral on fair near term valuations
Financials & Valuations (INR b)
FY17 FY18E FY19E
Adj. EPS (INR)
132.9 151.6 176.0
EPS Gr. (%)
212.2 255.6 306.0
4QFY17 Net sales (June year-end) declined 5.8% YoY (est. of +7.6%) to INR5b.
EBITDA declined by 17.7% YoY (est +2.7%) to INR 1.31b. Adj PAT declined by
28.6% YoY (est. +6%) INR 780m. GST led destocking and higher than expected
depreciation and tax rates affected profitability.
EBITDA margins declined by 380bp YoY to 26.1%
in 4QFY17 off a high base as
against our expectations of 130bp YoY decline. The operating margin decline
was led by gross margins which declined by 390bp YoY to 61.6%. Other
expenses increased by 330bp YoY as percentage to sales, while there was
240bp/100bp reduction on staff costs and on A&P.
Full year FY17 results-
Being a June year end company P&GHH witnessed the
impact of both demonetization and GST related destocking in a single financial
year, unlike peers. The company therefore did a fair job to grow full year
sales/EBITDA and PAT at 2%/10% and 2% respectively. Nevertheless weak FY17
base augurs well for recovery going forward.
Valuation and view:
Two factors make PGHH a highly attractive long term core
holding (1) Huge category growth potential in the feminine hygiene segment
(~70% of sales) and potential for market share growth because of its
considerable moats, a combination of which we believe is unsurpassed by
other consumer peers and (2) Potentially huge margin gains from
premiumization over the longer term in feminine hygiene. With the payout of
the huge cash pile, ROCEs have more than doubled and an investor concern has
been addressed. Nevertheless near term valuations will look expensive
because of the lower other income in FY18/FY19 compared to earlier years.
While PGHH remains one of our top long term picks, valuations of 46.3xFY19
EPS do not leave much room for upside over a 1 year horizon leading to
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.
– Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
– Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261