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Procter & Gamble Hygiene Equity Research

HomeCompanyProcter & Gamble Hygiene Equity Research

Date of Research – 20 January 2016

Price – Rs. 5285.00

About the Company

Procter & Gamble Hygiene and Health Care Limited (“Procter & Gamble” or the “Company”) is engaged in the manufacturing, marketing and distribution of Health Care and Hygiene products. The Company’s leading brands in the Health Care and Hygiene are Vicks, Whisper and Old Spice.

Feminine Hygiene Business: This business has been a growth engine for your Company, with all the variants of Whisper sanitary napkins posting strong growth.

Health Care Business: The Company’s Health Care products include Vicks VapoRub, Vicks Cough Drops, Vicks Action 500 and Vicks Inhaler.

The Company has its manufacturing locations at Kundaim – Goa and Baddi – Himachal Pradesh, apart from third party manufacturing locations spread across India.

In FY2013, Procter & Gamble has re-launched the ‘Old Spice’ brand after taking back the Personal Grooming brand from erstwhile Licensee and started marketing Old Spice under its own umbrella.

Financial Year- July to June

Key Financial Figures

Standalone (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Total Income from Operations 1,297.41 1,686.78 2,050.94 2,333.79 2,484.33 
Expenses 1,097.20 1,436.22 1,630.25 1,849.37 1,879.69  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 200.21 250.56 420.69 484.42 604.64  
Depreciation 28.08 31.31 35.18 52.53 51.69  
Finance Costs 0.03 0.01 5.39 5.72 4.02  
Other income 50.92 66.96 80.20 74.64 87.61  
PBT 223.02 286.20 460.32 500.81 636.54  
Tax 41.73 82.98 158.30 154.67 213.36  
PAT (before Minority Interest and share of Associates) 181.29 203.22 302.02 346.14 423.18  

Profitability Analysis

Standalone (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Operating Profit Margin Ratio 15.43 14.85 20.51 20.76 24.34 
Net Profit Margin Ratio 13.97 12.05 14.73 14.83 17.03 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 32.46 32.46 32.46 32.46 32.46
Reserves & Surplus 664.58 772.86 970.44 1,196.22 1,478.75
Net worth (shareholders funds) 697.04 805.32 1,002.90 1,228.68 1,511.21
Current liabilities 398.94 389.90 502.10 715.67 649.82
Other long term liabilities and provisions 2.56 2.79 2.94 3.33 3.57
Deferred Tax Liabilities
Total Liabilities 1,098.54 1,198.01 1,507.94 1,947.68 2,164.60

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 227.30 256.11 337.68 347.77 351.58
Current assets 769.29 840.70 1,012.43 1,357.11 1,633.55
Long term advances and other noncurrent assets 100.42 98.25 150.66 238.84 171.59
Deferred Tax Assets 1.53 2.95 7.17 3.96 7.88
Total assets 1,098.54 1,198.01 1,507.94 1,947.68 2,164.60

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 28.72 31.11 41.95 39.43 40.01
ROE / RONW 26.01 25.23 30.11 28.17 28.00

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Standalone
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Total Income from Operations (Rs. Cr.) 1,297.41 1,686.78 2,050.94 2,333.79 2,484.33 
Growth (%) 29.49 % 30.01 % 21.59 % 13.79 % 6.45 % 
PAT (Rs. Cr.) 181.29 203.22 302.02 346.14 423.18  
Growth (%) 20.16 % 12.10 % 48.62 % 14.61 % 22.26 % 
Earnings Per Share – Basic (Rs. ) 55.85 62.61 93.04 106.63 130.37 
Earning Per Share – Diluted (Rs. ) 55.85 62.61 93.04 106.63 130.37 
Price to Earnings 39.26 44.34 58.70 55.47 48.16 

Dividend History

The Company has maintained an average dividend yield of 0.39 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Procter & Gamble’s average current ratio over the last 5 financial years has been 2.04 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Procter & Gamble’s average long term debt to equity ratio over the last 5 financial years has been 00.00 times which indicates that the Company operates with zero level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since Procter & Gamble operates with very zero levels of debt, interest coverage ratio is not applicable in this case.

Ownership pattern

In its latest stock exchange filing dated 31 March 2016, Procter & Gamble reported a promoter holding of 70.64 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 13.02 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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