Procter and Gamble Hygiene and Health Care Ltd (P&G) has done a good job of selling its Whisper range of sanitary napkins and Vicks cold remedies. Sales during the June quarter were up 21% to Rs181.?crore. But that was not the only reason for a 157% growth in net profit. Its employee costs during the quarter dropped 88% to Rs1.97 crore, since it reversed gratuity provisions made earlier. Also, other income was up by 44%.
Its FY09 (year ended June) performance was more subdued. While revenues grew by a smart 20% to Rs772 crore, its operating profit grew at a lower rate of 18%. P&G operates in two difficult categories. Vicks is a valuable but old brand that has to keep looking younger. There are years in which its growth flags, though the past two years have seen good growth. Competition is stiff in this category with several new products being launched. Whisper is targeting a vast feminine hygiene market, but one where penetration is low since consumers don’t convert easily.
P&G has adopted an aggressive approach over the past few years, driving up its distribution network, improving visibility at the retail level and backing all this with higher advertising. Thus, advertising expenses jumped by 30% in FY09, on the heels of an 18% increase in the previous year. These efforts have paid off; Vicks grew by 14% to Rs356 crore and Whisper grew by 26% to Rs428 crore, respectively, during the year.
Graphics: Paras jain / Mint
In FY09, higher input costs and advertising expenses pulled down operating margins by 44 basis points (100 basis points equals?1?percentage point). Material costs softened in the latter part of the year. If net profit grew by 36% despite lower operating profit, it was due to higher other income and lower income tax. P&G generated nearly Rs130 crore cash in fiscal 2008 and would have seen healthy accretion in FY09. Hence, other income rose by 147% to Rs37 crore.
While P&G’s advertising spend slowed in the last quarter, that need not be a trend, since spends are not evenly?spread?during?the?year.
In the past, a poor monsoon has had an effect on the market for cold remedies. This may be seen in the current quarter’s performance. Sustaining growth rates at these levels is indeed a challenge. But P&G has fallen back upon well established strategies of expanding distribution, improving visibility, advertising and brand re-launches. They may seem simple, but if done well can work wonders in difficult categories such as these.
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