P&G Hygiene: A good performance

The feminine hygiene business continues to drive P&G Hygiene and Healthcare’s (PGHH’s) revenues — in the June 2009 quarter ,the business saw sales rise a shade over 31 per cent to Rs 121.4 crore. That resulted in PGHH posting 20.5 per cent growth in top line, a number that P&G has consistently reported in each of the quarters in the last two years. While the operating profit margin (OPM) was up close to 2,000 basis points year-on-year at just under 36 per cent, much of that was because of significantly lower costs on employees.

Expenses on advertising as a proportion of sales were lower by about 430 basis points year-on-year, though raw material costs were higher because a larger share of feminine hygiene products was sold. The healthcare segment, with brands like Vicks, posted a rather feeble revenue growth of just 3.4 per cent in the June quarter. With a strong brand in Whisper, PGHH is the undisputed market leader in the sanitary napkins space and commands a share of just under 50 per cent. It continues to add share and, according to ICICI Securities, has picked up 100 basis points in the June quarter.

The market should continue to grow at around 20 per cent per annum and given that it has pricing power, it should not be difficult for PGHH’s OPM to sustain at 28-29 per cent in the next few years.

For the current year ending June 2010, PGHH is expected to turn in revenues of close to Rs 900 crore over the Rs 774 crore reported in 2008-09, a growth of around 16 per cent. The net profit is estimated to grow 20 per cent over the Rs 179 crore posted last year. That would translate into an earnings per share of at least Rs 66. At the current price of Rs 1,105, the stock trades at just under 17 times estimated 2009-10 earnings and is attractively valued.