P&G Hygiene and
Healthcare
BSE SENSEX
28,335
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
8,768
PG IN
32.5
219.8 / 3.3
7280 / 5620
-5/1/12
41
29.4
2 February 2017
3QFY17 Results Update | Sector: Consumer
CMP: INR6,963
TP: INR8,250 (+18%)
Buy
Sales disappoint, EBITDA and PAT well ahead of expectations
Sales declined 2.4% YoY (est. of +10%) to INR6.43b.
EBITDA margin at 35.5%,
however, was up 270bp YoY (est. of -700bp due to fears of a high base). EBITDA
increased by 5.7% YoY (est. of -14.3%) to INR2.29b and PAT by 2.8% YoY (est. of
-14.4%) to INR1.51b.
Demonetization affects sales:
Management stated that unforeseen liquidity
crunch impacted trade inventories and consumer offtake. While the company
did not give segmental details, we assume that Healthcare (29% of sales in
FY16) is likely to have been affected more post demonetization.
Gross margin expansion healthy:
Gross margin expanded 330bp YoY to 63.7%.
Staff costs were flat YoY at 4.3% of sales and advertisement costs declined
10bp YoY to 8.5% of sales. However, other expenses increased 70bp YoY to
15.4% of sales, partially offsetting gross margin gains.
Balance sheet highlights:
(1) Both inventory and debtors have increased over
June 2016 levels. Net working capital was marginally positive at end-December
2016 at INR228m, as against negative INR470m at end-June 2016. We expect
net working capital to normalize by end-June 2017. (2) Inter-group lending,
which has been reducing sharply over past two years, was flattish in December
2016 compared to June 2016.
Valuation and view:
PGHH’s has distinct advantages over FMCG peers, as (1) it
is in a much faster growing category and (2) it enjoys far superior barriers to
entry in its key Feminine Hygiene segment (69% of sales). Its ongoing
distribution expansion and unmatched category development efforts will only
enhance the entry barriers further. Consequently, longer-term earnings
prospects are far superior to FMCG peers. We maintain 45x target multiple on
December 2018 EPS, arriving at a target price of INR 8,250 (8,340 earlier).
Financials & Valuations (INR b)
Y/E June
2016 2017E 2018E
Net Sales
22.8
24.5
29.2
EBITDA
6.1
6.8
7.9
NP
4.2
4.7
5.4
EPS (INR)
129.9 145.7 167.7
EPS Gr. (%)
22.0
12.1
15.0
BV/Sh. (INR)
465.6 539.8 624.8
RoE (%)
30.8
29.0
28.8
RoCE (%)
31.3
29.4
29.1
P/E (x)
53.6
47.8
41.5
P/BV (x)
15.0
12.9
11.1
Estimate change
TP change
Rating change
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
Exhibit 1: Marginal change in FY18 and FY19 EPS estimates
FY17E
25,518
6,494
4,500
Old
FY18E
30,919
8,044
5,489
FY19E
36,901
9,586
6,555
FY17E
24,515
6,831
4,736
New
FY18E
29,220
7,907
5,449
FY19E
34,470
9,370
6,462
FY17E
-3.9
5.2
5.2
Change (%)
FY18E
FY19E
-5.5
-6.6
-1.7
-2.3
-0.7
-1.4
Source: Company, MOSL
Sales
EBITDA
PAT
Exhibit 2: P&G Hygiene
P/E (x)
PE (x)
65.0
45.0
25.0
5.0
32.6
12.2
Peak(x)
Avg(x)
58.1
44.3
Min(x)
Exhibit 3: P&G Hygiene
P/E premium vs. Sensex
200
150
100
50
0
-50
P&G Hygiene PE Relative to Sensex PE (%)
LPA (%)
158.4
90.9
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Valuation Matrix of coverage universe
Company
Consumer
Asian Paints
Britannia
Colgate
Dabur
Emami
Godrej
GSK
HUL
ITC
Jyothy Labs
Marico
Nestle
Page
Parag Milk
Pidilite Inds.
P&G Hygiene
Radico
United Brew.
United Spirits
Retail
Jubilant
Shopper's
Titan
Reco
Price
(INR)
997
3,225
894
266
1,111
1,577
5,076
855
277
348
270
6,155
14,327
274
672
6,963
129
818
2,280
999
295
393
Mkt Cap
(USD M)
14,187
5,741
3,608
6,964
3,741
7,965
3,167
27,446
49,631
934
5,166
8,806
2,371
341
5,115
3,353
253
3,207
4,916
975
360
5,182
EPS Growth YoY (%)
FY16 FY17E FY18E
26.3
46.3
10.4
17.2
17.7
24.4
20.4
12.9
-3.5
-41.7
26.1
-7.3
18.7
-66.7
47.3
22.0
3.9
12.8
LP
-11.7
19.3
-13.4
8.1
0.8
-4.4
2.6
-2.9
11.0
-5.6
1.1
8.6
84.7
8.3
-7.0
18.6
4.6
12.7
12.1
-23.5
11.2
71.2
-14.3
-29.8
15.0
13.3
16.3
18.9
13.8
22.0
16.2
13.4
11.7
13.5
18.6
16.5
24.8
26.4
37.7
9.9
15.0
33.8
32.6
64.1
74.6
95.8
4.6
FY16
53.2
46.0
39.4
37.5
44.1
47.5
30.4
44.9
35.9
84.8
48.1
51.3
68.7
40.7
45.6
53.6
18.7
73.7
136.3
66.8
50.7
49.0
P/E (x)
FY17E FY18E
49.2
45.7
41.3
36.5
45.4
42.8
32.2
44.4
33.1
45.9
44.5
55.2
57.9
38.9
40.4
47.8
24.4
66.3
79.6
77.9
72.1
42.6
43.5
39.3
34.7
32.1
37.2
36.8
28.4
39.7
29.1
38.7
38.2
44.2
45.8
28.3
36.8
41.5
18.3
50.0
48.5
44.6
36.8
40.7
EV/EBITDA (x)
FY16 FY17E FY18E
33.7
32.9
25.4
29.9
37.7
35.2
19.7
31.3
23.0
30.4
33.0
36.1
42.5
15.6
27.7
35.6
12.2
32.5
42.3
24.4
12.3
40.5
31.1
32.9
25.0
29.9
33.3
31.6
22.1
30.7
21.8
25.6
30.9
32.7
37.8
16.5
27.0
30.9
13.4
31.6
38.0
25.2
17.0
30.6
28.0
27.8
20.8
26.2
29.0
27.9
19.2
27.8
19.0
22.6
26.7
26.0
29.2
13.2
23.9
26.3
12.0
25.4
28.3
17.2
12.5
28.7
RoE (%)
FY16
34.7
55.9
68.9
33.3
43.4
23.4
30.8
82.4
29.3
9.1
36.9
40.9
46.0
19.5
29.9
30.8
10.3
14.8
19.8
13.4
6.3
21.3
Div.
FY16
0.9
0.6
1.2
0.7
0.7
0.6
1.1
1.9
2.5
1.2
1.3
0.8
0.6
0.0
0.6
0.5
0.6
0.1
0.0
0.2
0.0
0.6
Neutral
Buy
Buy
Neutral
Buy
Neutral
Neutral
Neutral
Buy
Neutral
Buy
Neutral
Buy
Neutral
Neutral
Buy
Neutral
Buy
Buy
Neutral
Neutral
Neutral
Note: For Nestle FY16 means CY15
Source: Company, MOSL
7 February 2017
2

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 (%)
Raw Materials
% of Sales
Employees Cost
% of Sales
Other Expenses
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT after EO Exp.
Total Tax
Tax Rate (%)
Adjusted PAT
Change (%)
Margin (%)
FY12
13,038
64
12,974
29.3
5,243
40.4
647
5.0
5,083
39.2
2,002
15.4
281
1,721
0
509
2,230
417
18.7
1,813
19.9
14.0
FY13
16,986
118
16,868
30.0
7,045
41.8
997
5.9
6,321
37.5
2,506
14.9
313
2,192
0
670
2,862
830
29.0
2,032
12.1
12.0
FY14
20,673
164
20,509
21.6
8,128
39.6
950
4.6
7,225
35.2
4,207
20.5
352
3,855
54
802
4,603
1,583
34.4
3,020
48.6
14.7
FY15
23,599
261
23,338
13.8
9,209
39.5
1,133
4.9
8,152
34.9
4,844
20.8
525
4,319
57
746
5,008
1,547
30.9
3,461
14.6
14.8
FY16
23,492
738
22,754
-2.5
8,848
38.9
1,179
5.2
6,674
29.3
6,053
26.6
517
5,536
60
876
6,353
2,129
33.5
4,223
22.0
18.6
FY17E
25,404
889
24,515
7.7
9,635
39.3
1,197
4.9
6,852
28.0
6,831
27.9
603
6,228
55
950
7,122
2,386
33.5
4,736
12.1
19.3
(INR Million)
FY18E
30,342
1,122
29,220
19.2
11,422
39.1
1,396
4.8
8,495
29.1
7,907
27.1
678
7,229
35
1,000
8,194
2,745
33.5
5,449
15.0
18.6
FY19E
35,794
1,324
34,470
18.0
13,475
39.1
1,646
4.8
9,980
29.0
9,370
27.2
782
8,588
35
1,165
9,718
3,255
33.5
6,462
18.6
18.7
Standalone - Balance Sheet
Y/E June
Equity Share Capital
Total Reserves
Net Worth
Deferred Tax Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
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
0
6,955
3,459
1,475
1,984
289
0
8,697
923
482
1,824
5,469
4,015
3,097
918
4,682
6,955
FY13
325
7,729
8,053
-30
0
8,024
3,775
1,626
2,149
412
0
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
0
9,957
4,281
1,886
2,395
982
0
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
0
12,247
5,237
2,149
3,088
390
0
15,960
1,191
1,139
6,186
7,444
7,190
4,570
2,621
8,770
12,247
FY16
325
14,788
15,112
-79
0
15,033
5,759
2,591
3,169
347
0
18,051
1,275
1,496
10,749
4,532
6,534
4,239
2,295
11,518
15,033
FY17E
325
17,198
17,523
-87
0
17,436
6,072
3,194
2,879
434
0
22,230
1,320
1,247
15,110
4,553
8,107
4,738
3,369
14,124
17,436
(INR Million)
FY18E
325
19,957
20,282
-95
0
20,187
7,184
3,872
3,313
422
0
25,892
1,486
1,399
17,680
5,327
9,440
5,625
3,815
16,452
20,187
FY19E
325
23,228
23,553
-105
0
23,448
8,284
4,654
3,631
422
0
30,363
1,753
1,650
20,857
6,103
10,968
6,531
4,437
19,395
23,448
7 February 2017
3

P&G Hygiene and Healthcare
Financials and Valuations
Ratios
Y/E June
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
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
22.5
40.3
FY13
62.5
72.3
248.1
25.0
39.9
FY14
92.9
103.9
309.0
27.5
29.6
74.9
67.0
22.5
10.9
53.1
0.4
63.9
33.4
34.0
41.3
2.1
21
15
39
0.0
FY15
106.5
122.8
378.5
30.2
28.4
65.4
56.7
18.4
9.4
45.4
0.4
144.1
31.0
31.5
49.9
1.9
19
16
47
0.0
FY16
129.9
146.0
465.6
36.0
27.7
53.6
47.7
15.0
9.5
35.6
0.5
183.9
30.8
31.3
76.6
1.5
18
19
51
0.0
FY17E
145.7
164.5
539.8
63.0
43.2
47.8
42.3
12.9
8.6
30.9
0.9
210.3
29.0
29.4
142.1
1.4
18
17
49
0.0
FY18E
167.7
188.8
624.8
72.1
43.0
41.5
36.9
11.1
7.1
26.3
1.0
166.1
28.8
29.1
241.8
1.4
17
16
50
0.0
FY19E
198.8
223.2
725.6
103.0
51.7
35.0
31.2
9.6
6.0
21.9
1.5
200.9
29.5
29.7
268.6
1.5
17
16
50
0.0
0.3
42.3
27.9
27.9
29.5
1.9
22
11
58
0.0
0.4
24.2
27.1
27.1
28.8
2.1
23
14
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
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
E: MOSL Estimates
FY12
1,813
250
3
-43
-107
1,916
0
1,916
-543
1,373
0
0
-543
0
0
-849
0
-849
524
1,300
1,824
FY13
2,032
151
627
-14
-1,571
1,225
0
1,225
-439
786
0
0
-439
0
0
-949
0
-949
-163
1,824
1,661
FY14
3,020
260
571
-42
-659
3,150
0
3,150
-1,075
2,075
0
0
-1,075
0
0
-1,044
0
-1,044
1,031
1,661
2,691
FY15
3,461
263
504
32
802
5,063
-22
5,041
-364
4,677
0
0
-364
0
0
-1,182
0
-1,182
3,495
2,691
6,186
FY16
4,232
442
-325
-39
2,140
6,449
0
6,449
-480
5,969
0
0
-480
0
0
-1,407
0
-1,407
4,563
6,186
10,749
FY17E
4,875
603
1,073
-8
682
7,226
0
7,226
-400
6,826
0
0
-400
0
0
-2,464
0
-2,464
4,362
10,749
15,111
FY18E
5,579
678
446
-9
-205
6,490
0
6,490
-1,100
5,390
0
0
-1,100
0
0
-2,820
0
-2,820
2,570
15,111
17,681
FY19E
6,614
782
622
-10
-388
7,620
0
7,620
-1,100
6,520
0
0
-1,100
0
0
-3,343
0
-3,343
3,177
17,681
20,858
7 February 2017
4

P&G Hygiene and Healthcare
Corporate profile
Company description
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.
Exhibit 2: Shareholding pattern (%)
Dec-16
Promoter
DII
FII
Others
70.6
9.2
3.9
16.3
Sep-16
70.6
9.3
3.8
16.3
Dec-15
70.6
10.1
3.3
16.0
Source: Capitaline
Source: Capitaline
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 3: Top holders
Holder Name
General Insurance Corporation Of India
% Holding
1.6
Note: FII Includes depository receipts
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)
FY17
FY18
FY19
MOSL
forecast
145.7
167.7
198.8
Consensus
forecast
-
-
-
Variation
(%)
-
-
-
Source: Bloomberg
7 February 2017
5

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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
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Contact : (+65) 68189232
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Motilal Oswal Securities Ltd
7 February 2017
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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