The company’s gross profit margins expanded by 430 basis points
Even as valuations of the stock are pricey, P&G Hygiene shares were trading higher post results.
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.