Procter and Gamble Hygiene and Health Care Ltd took investors by surprise with net profit rising sharply in the December quarter. Revenue rose by 21.7% to Rs275 crore, while operating profit margin increased by over 11 percentage points to 35.3%.
It sells two products—Whisper sanitary napkins and the Vicks range of cold remedies.
Its sales have been rising at a healthy rate of 17-20% in the past five quarters. Vicks is a relatively mature brand. The company’s strategy focuses on introducing new variants, expanding distribution, particularly in rural areas, and advertising to drive consumption. During the quarter, Vicks Vaporub’s sales grew by 26% while the overall Vicks franchise grew by 11% to Rs138 crore.
Whisper operates in a segment where population growth, rising urbanization and improving literacy and income levels combine to make an attractive market. Penetration levels are still low, compared with, say, China, which explains how the firm has been able to consistently grow sales. Sanitary napkin sales grew by 34% to Rs136 crore during the quarter. During the fiscal ended June, sales were up by 26%, almost all of it because of volume-led growth.
But assuming that the firm’s profitability margins will remain at these levels may be a folly. During the quarter, its material consumption increased by around 24%, higher than its sales growth. But advertising expenses fell by 6% while other expenditure declined by 35%. In subsequent quarters, a sharp rise in advertising expenses or a change in other costs could well affect its margins.
While net profit growth in the quarter was 58%, it would be unwise to assume this as a trend. In the September quarter, for example, despite sales increasing by 20%, net profit grew by only 4.8%, after rising by 106% in the June quarter.
While the firm’s revenue lends itself to a degree of predictability, the same cannot be said of its profits. At Rs1,751, the share was up 10% on Monday and trading at 33 times its past 12-month earning per share.
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