Home >Markets >Mark To Market >P&G Hygiene’s Q1FY21 earnings offer comfort; valuations do not

During this unprecedented health crisis, Procter & Gamble Hygiene and Health Care Ltd’s (P&G Hygiene’s) marginal 0.5% year-on-year (y-o-y) decline in June quarter revenue is encouraging. The company’s financial year ends in June.

True, some products across the personal care category are considered discretionary during this pandemic. But P&G Hygiene has the feminine care brand, Whisper, in its portfolio, which contributes a good proportion of its sales, and is resilient. The company’s margin performance impresses, too. Gross profit margins expanded by 430 basis points. One basis point is one-hundredth of a percentage point. Further, Ebitda surged by 722 basis points to 17.4%. Yes, margins in the June 2019 quarter had contracted sharply. Even so, last quarter’s Ebitda margin is higher compared to the June 2018 quarter margin, which was at 16%.

Note that margins expanded despite a jump in employee costs by about 44% on a y-o-y basis. The main boost to Ebitda margins last quarter came from nearly 42% drop in advertising and sales promotion expenses. Plus, the flattish revenue performance helped operating leverage unlike other companies that saw a meaningful revenue decline as the pandemic lockdown impacted their sales.

The upshot: P&G Hygiene’s Ebitda increased by a neat 70% over the same period last year to 110 crore.

Despite being pricey, the stock has increased by about 1% since the results were announced on Monday. “Although valuations are expensive at about 52 times estimated FY22 earnings per share, implying near-term upside is limited, two factors make P&G Hygiene an attractive long-term core holding," said analysts from Motilal Oswal Financial Services Ltd in a report on 25 August.

“One, huge category growth potential in the feminine hygiene segment (about 70% of sales) and potential for market share gains due to considerable moats. Second, huge potential margin gains from premiumization in Feminine Hygiene over the long term," added the broking firm.

To be sure, it would be far-fetched to expect similar Ebitda growth such as that seen in the June quarter, going ahead.

Perhaps, that is why P&G Hygiene’s shares are still about 14.5% away from their pre-covid highs in February.

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