Improving outlook to help P&G Hygiene maintain sales growth momentum

Company's revenues improved by 18 per cent in September quarter compared to over the year-ago quarter, with growth coming from its portfolio of brands.

P&G Hygiene and Health posted a strong September quarter performance as revenues improved by 18 per cent year-on-year (YoY). In addition to the recovery in demand, the company said growth was led by its portfolio of strong brands and retail execution. 

Its production and supply chain networks are back to pre-Covid levels, which helped it tap into market recovery. This robust performance came after two consecutive quarters of decline. On a sequential basis, the company’s sales growth beat expectations, rising 59 per cent. Margins expanded by 130 basis points (bps). Though the stock saw a gain of 11 per cent on Tuesday after the announcement of results, it shed some of the gains on Wednesday in a weak market.  

The sales uptick was led by the feminine care business, which accounts for over two-thirds of the top line, registering a growth of around 20 per cent. The other segment, health care, reported a revenue growth in the high single digits. What should aid growth further are efforts to enhance distribution reach, increase advertising spends, launch new products at attractive price points in addition to awareness programmes in schools. 

New product launches in FY20 included its major brands across segments of Whisper, Vicks, and Old Spice. Some of the above mentioned steps helped Vicks to not only post strong growth over last year but also helped gain market share in each of its sub segments of Vaporub, cough drops, and tablets. 

Analysts at Motilal Oswal Research believe there is significant growth opportunity in the feminine hygiene segment and the company can gain market share while margin gains in the segment could come from huge potential for premiumisation.

Though the stock holds promise over the long term, investors should temper expectations in the near term as the recent surge in prices factors in the upside. The stock is trading at over 50 times its FY22 earnings estimates.