P&G - Structural Story Strong; Rich Valuation Limits Near Term Upside: Nirmal Bang

Nirmal Bang Report

FY23 (June year ending) was a muted year for Procter and Gamble Hygiene and Healthcare Ltd., especially because of exceptionally high base of growth in Vicks in FY21 and FY22 and because of self-medication during Covid.

Hence, there was ~6% decline in sales from this segment in FY23. Three-year compound annual growth rate in this segment (32% of sales in FY23) is still healthy at ~9.3%.

Despite muted growth in FY23 (4%) in Feminine Hygiene business (68% of FY23 sales) because of inflation-led impact affecting conversion from cloth to sanitary napkins, it still has notched a healthy ~10% revenue CAGR in the last three years and healthy double-digit sales track record in the past.

The two recent quarters (Q4 FY23 and Q1 FY24) have also seen an uptick in sales momentum at ~13% YoY and 9% YoY, respectively.

As highlighted in our initiating coverage note and analyst meet note, the structural investment case remains strong.

We have an 'Accumulate' rating on P&G as near term valuation seems fair after a ~25% run-up post our initiating coverage note in June 2023.

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