Procter & Gamble Hygiene and Health Care Ltd. (PGHH) registered 19.5% y-o-y growth in revenues at Rs1.8 billion during Q3 F6/09 primarily led by strong growth in the Feminine Hygiene segment.
This segment recorded highest-ever turnover of Rs1.1bn (up 24.5% y-o-y), led by strong growth in Whisper Choice (mid-tier market segment) and Whisper Ultra brands.
The Healthcare segment recorded a modest 13% y-o-y increase (being off-season) in revenues at Rs696mn. During 9M F6/09, both these segments recorded 24% y-o-y (Rs3.1bn) and 14% y-o-y (Rs2.8bn) growth respectively.
Operating margin for the quarter dipped by 920bps to 17.8% due to sharp rise in raw material cost (~500bps) and adspend (~250bps).
The company commenced commercial production and dispatches of additional products from its Baddi facility from Q1 F6/08, as a result of which it has been saving on the outsourcing cost.
It has paid royalty of Rs95mn (5.3% of Health & Hygiene revenues) against Rs78mn paid during Q3 F6/08.
PGHH enjoys strong leadership position in its core high-margin-high-growth segments with two flagship brands, Vicks in Healthcare space and Whisper in the Feminine Hygiene space (~50% market share).
With a very low penetration level and low per capita consumption, both these categories have a tremendous potential to grow. PGHH being the market leader will be the biggest beneficiary.
The feminine hygiene business of the company, has picked up pace and is likely to sustain the growth momentum given low penetration levels in the category.
The company has set up two new health care plants in Baddi with an investment of Rs600 million to meet increasing demand for its products while it continues to produce feminine hygiene products at Goa facility.
With the commencement of production at its Baddi facility, it has started saving on its outsourcing cost. With the additional contribution from the new plants, we expect the overall profitability to improve going forward.
We expect the company to witness a 24.4% CAGR in net profit over F6/08-10. At the current market price of Rs801, the stock is trading at 12.8x F12/10E EPS of Rs62.6. We maintain BUY with a revised price target of Rs908 (earlier target Rs886).