 "P&G in tough spot as focus on revenue growth leads to compromise on profit")
The Procter & Gamble Hygiene and Healthcare (P&G) stock has sharply outperformed the Nifty FMCG (up 0.3 per cent), clocking a gain of 15 per cent over the past year.
The gain was largely on account of the tax cuts announced in September. On the operating front, however, the key metrics look weak both on the revenue and margin fronts.
P&G’s continued focus on growth in the underpenetrated category (feminine hygiene segment) with distribution expansion, advertising spends, and price cuts, among others are expected to keep margins under pressure for now.
Analysts at Kotak Institutional Equities believe that operating in underpenetrated categories is the right strategy even if there is a short-term compromise on margins.
P&G had also undertaken price cuts to the tune of 10 per cent for its feminine hygiene segment last year.
Advertising spends as a percentage of sales continued to remain elevated at 10-11 per cent in FY19, compared to 8-9 per cent almost three years ago.
The feminine hygiene segment (Whisper) accounts for close to 70 per cent of P&G’s sales. It follows a July-June accounting period.
The strategy to focus on growth is positive in the long term, given the lower penetration and rising awareness about sanitary napkins. However, in light of the slowdown, pushing revenue growth at the cost of profitability would be challenging, says an analyst.
The gain was largely on account of the tax cuts announced in September. On the operating front, however, the key metrics look weak both on the revenue and margin fronts.
P&G’s continued focus on growth in the underpenetrated category (feminine hygiene segment) with distribution expansion, advertising spends, and price cuts, among others are expected to keep margins under pressure for now.
Analysts at Kotak Institutional Equities believe that operating in underpenetrated categories is the right strategy even if there is a short-term compromise on margins.
P&G had also undertaken price cuts to the tune of 10 per cent for its feminine hygiene segment last year.
Advertising spends as a percentage of sales continued to remain elevated at 10-11 per cent in FY19, compared to 8-9 per cent almost three years ago.
The feminine hygiene segment (Whisper) accounts for close to 70 per cent of P&G’s sales. It follows a July-June accounting period.
The strategy to focus on growth is positive in the long term, given the lower penetration and rising awareness about sanitary napkins. However, in light of the slowdown, pushing revenue growth at the cost of profitability would be challenging, says an analyst.
