P&G Hygiene - Focusing On Sustainable Growth; Rich Valuation Limits Upside: Motilal Oswal

Motilal Oswal Report

During the analyst meet, the management highlighted:

1. potential for double-digit sales growth, particularly in the feminine hygiene segment, in which per-capita spending is currently only one-sixth of that in China;

2. the possibility of accelerating revenue growth following a 1.5 times increase in distribution reach compared to three years ago;

3. growing momentum in new portfolio innovations such as Whisper Ultra hygiene products and Vicks Roll-On for headaches; and

4. cost savings to continue (savings of Rs 1.13 billion in FY24, ~3% of sales).

P&G has delivered sales/Ebitda/adjusted profit after tax growth of 8%/13%/15% in FY24. Gross margin expanded by 400bp YoY to 61.6% during the year, out of which 260 bp was reinvested in advertising and promotion (up 33 % YoY in FY24). Ebitda margin moderated by 120 bp YoY to 23.4%.

The company has delivered growth over the years through a strong portfolio of products, superior packaging, brand communication, and retail execution. It has delivered a CAGR of 7%/10%/11% in sales/Ebitda/ APAT over FY19-24. Ebitda margin has improved by ~270 bp over the same period.

The stock trades at an expensive valuation of 62 times/54 times FY25E/FY26E EPS. We reiterate Neutral rating on the stock.

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