P&G Q2 Results Review - Sales, Gross Profit Inline; Lower Ad-Spends Surprise: Motilal Oswal

Motilal Oswal Report

Procter and Gamble Hygiene and Health Care Ltd. reported an in-line performance up to the gross profit level in its Q2 FY23 results (June year-end). However, the company beat our Ebitda/ profit before tax/profit after tax estimates by 15-17%, as ad-spends were significantly lower than our expectation at 9.7% of sales (after jumping to 14.9% of sales in Q1 FY23).

We are not making any material changes to our earnings per share forecasts, given the volatility in ad-spends, possible delays in gross margin recovery due to higher inventory even as pulp and oil costs are coming down, and traditionally weak single-digit margins in Q4 every year recently.

Two factors make P&G an attractive long-term core holding:

1. huge category growth potential in the feminine hygiene segment (~65% of FY22 sales), coupled with potential for market share gains aided by considerable moats that the company is fortifying, as indicated in our detailed annual report note in Nov-22; and

2. potential for higher margin gains from premiumisation in the feminine hygiene segment over the long term.

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