Sales, margin outlook remain strong for P&G Hygiene and Healthcare

The company reported double-digit sales growth, and margin expansion in the June quarter

P&G Hygiene and Healthcare’s June quarter numbers were better than Street estimates, led by strong sales and robust margins.

The company, which owns leading consumer brands like Whisper, Vicks and Old Spice, posted a 12.6 per cent year-on-year (Y-o-Y) growth in sales at Rs 852.5 crore during the quarter.

The double digit sales growth, led by expansion of its distribution reach, reverses a sluggish sales graph with three of the last four quarters reporting a fall in sales.

For the full year (company’s financial year ends in June), it posted a sales growth of 3.1 per cent at Rs 3,917 crore.

Adjusted for one-time tax impact, the company posted a 10 per cent growth in net profit for the year.

The management highlighted that growth/profit was driven by premiumisation and productivity interventions, with the company making sequential progress in profit growth, despite the challenging operating and cost environment.

Gross margins for the quarter grew by 530 basis points (bps) Y-o-Y and 130 bps on a sequential basis to 57.8 per cent. This is the highest during the last three quarters and marginally higher than estimates.

Phillip Capital India Research believes that the expansion was on account of correction in the raw material index with lower pulp and gel polymer prices, calibrated price hikes and improved salience of the high margin healthcare portfolio.

Gains in gross profit and lower advertising and promotion expenses led to sharp rise in operating profit margins. The metric expanded by 1,630 bps to 25.2 per cent.

A large chunk of the gains was on account of lower advertising costs, which as a proportion of sales was down 650 bps to 6.5 per cent.

Other expenses were down 460 bps to 20.7 per cent, while employee costs remained flat.

Considering the steps taken by the company in the women’s hygiene segment, which accounts for two-thirds of sales, brokerages remain positive on the outlook for the stock.

Nirmal Bang Research has a ‘buy’ rating.

“If recovery seen in sales momentum in Q4 of FY23 continues (as the impact of inflation subsides) and raw material cost (pulp, waxes, oils and chemicals) stays down,  earnings can compound at 23 per cent annually over the next two years. With return ratios of over 80 per cent and dividend payout of approximately 90 per cent, high multiples look sustainable,” said Krishnan Sambamoorthy and Sunny Bhadra of the brokerage.

While Motilal Oswal Research is also positive on the long-term growth potential of the sanitary napkin and healthcare business, it has a neutral rating on the stock.

“The uncertain pace of recovery and challenging valuations of 65 times and 53 times its FY24 and FY25 earnings, respectively, has made us maintain our neutral rating,” said Pratik Prajapati and Tanu Jindal of the brokerage.

The stock has shed 4 per cent from its highs over the last couple of trading sessions.