For P&G Hygiene, present tense, but future outlook better
PremiumThe company’s June quarter results (Q4FY22) announced on Tuesday during market hours have failed to impress. The company follows the July to June financial year.
Procter & Gamble Hygiene and Health Care Ltd’s shares have fallen by nearly 3% over the past two days. The company’s June quarter results (Q4FY22) announced on Tuesday during market hours have failed to impress. The company follows the July to June financial year.
On a year-on-year (y-o-y) basis, key metrics such as operating revenue, margins, and profit after tax declined. High commodity costs were a headwind last quarter. P&G Hygiene expects commodity fluctuations and uncertainties to persist in the near term.
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In Q4, revenue, after adjusting for one-off intercompany inventory sale, fell by 3.7% y-o-y. This comes against the backdrop of the company having clocked revenue growth continuously in the previous seven quarters.
In Q4, the base was high as the corresponding quarter of the previous year was influenced by the second wave of coronavirus, which is likely to have boosted Vicks sales then.
Nevertheless, on a two-year compound annual growth rate (CAGR) basis, revenue growth in Q4FY22 was 9.2%. This is lower than the 11-17% CAGR range seen in the preceding three quarters.
Further, gross margin fell sharply by 1,556 basis points (bps) y-o-y to 52.5%, but this was partially offset by savings in advertisement and promotion (A&P) expenses. One basis point is 0.01%. The upshot: Ebitda (earnings before interest, taxes, depreciation and amortization) margin was down only by 66bps y-o-y.
In FY22, the drop in A&P expenses as a percentage of revenue aided performance at the Ebitda margin level. The company also implemented cost-control measures. A further drop in A&P expenses would offer some cushion to margins.
Earnings growth ahead is likely to be driven by the feminine care segment, which is a significant revenue contributor for the company and includes the Whisper brand. Analysts at Motilal Oswal Financial Services see huge growth potential in this segment and also expect market share gains backed by considerable moats. Further, there is scope for higher margin gains from premiumization in this vertical over the long term, they said.
P&G Hygiene has declared a dividend of ₹160 per share in FY22. This represents a dividend payout of almost 90%, which continues to remain strong. The return on equity and return on capital employed are 80.7% and 86.7%, respectively, according to Motilal Oswal. Based on the broking firm’s FY24 earnings per share estimates, P&G Hygiene’s shares now trade at about 47 times. Valuations are not exactly cheap.
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