Motilal Oswal's research report on Procter and Gamble Hygiene and Health care
P&G Hygiene and Healthcare (PGHH) declared a weak set of numbers in its 1QFY23 result (June year-end). PGHH reported flattish sales v/s our expectation of 11% growth. High CPI inflation appears to be severely affecting the conversion from cloth to sanitary napkins, the key driver of its sales growth. While the company does not share segmental data in its quarterly results, there may also have been a high base of Vicks sales in 1QFY22 because of the pandemic. Downtrading to cheaper SKUs in the feminine hygiene segment may also be a factor impacting sales adversely. While gross margin performance was better than expected and improved ~610bp sequentially, it contracted ~790bp YoY. This along with extremely high advertising expenses (14.9% of sales in 1QFY23 v/s 11.7% to 12.8% range in the preceding four quarters) led to ~29% YoY decline in EBITDA and PAT each during the quarter. While we remain positive on the long-term growth potential of the sanitary napkin and healthcare business, uncertain pace of recovery and challenging valuations of ~52xFY24E EPS lead us to downgrade the stock to Neutral.
Outlook
Nevertheless, the uncertain pace of recovery and expensive valuations of 51.9xFY24E EPS lead us to downgrade the stock to Neutral. We value the stock at 50x Sep’24E EPS arriving at our TP of 14,250.
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