Proc­ter & Gam­ble Hy­giene & Health Care Ltd

Money Times - - Best Bet -

(BSE Code: 500459) (CMP: Rs.10011.95) (FV: Rs.10) By Amit Ku­mar Gupta

Founded in 1964, Mum­bai-based Proc­ter & Gam­ble Hy­giene & Health Care Ltd (P&G) man­u­fac­tures and sells branded pack­aged fast mov­ing con­sumer goods (FMCG) in the fem­care and health­care busi­nesses. It of­fers ayurvedic prod­ucts and san­i­tary nap­kins and is also in­volved in the man­u­fac­ture, trade and mar­ket­ing of health and hy­giene prod­ucts. Its brands in­clude Du­ra­cell, Gil­lette, Head & Shoul­ders, Oral-B, Pam­pers, Pan­tene, Tide, Vicks, Wella, Whis­per, etc. Its prod­uct port­fo­lio com­prises oint­ments and creams, cough drops, tablets, per­sonal prod­ucts and toi­let prepa­ra­tions, etc, which are sold through re­tail op­er­a­tions in­clud­ing mass mer­chan­dis­ers, gro­cery stores, mem­ber­ship club stores, drug stores, de­part­ment stores and high fre­quency stores.

The man­age­ment has been ag­gres­sive in the re­cent quar­ters on in­crease in ad spends, new launches and price cuts, wher­ever re­quired. Ar­rest­ing the dip in Whis­per’s mar­ket share, it achieved growth in this seg­ment over the past six months. The dis­tri­bu­tion of Vicks and Whis­per in­creased to 3.5 mil­lion out­lets and 2 mil­lion out­lets re­spec­tively, from 2 mil­lion and 1.4 mil­lion out­lets four years ago. Vicks has con­tin­u­ously gained mar­ket share. Its new prod­uct ‘Vicks Baby Rub’ which was launched in FY18 is also do­ing very well.

The re­cent change at the CEO level has made P&G more dy­namic than in the re­cent past. P&G in­tends to launch its san­i­tary nap­kin recycling pro­gram in 10 ma­jor ci­ties across the world by 2030 with In­dia be­ing one of the pri­or­ity coun­tries with launch in 2019. It also aims to use 100% re­new­able or re­cy­clable ma­te­ri­als for its prod­ucts and pack­ag­ing, cut green­house gas emis­sions by half, power its plants with 100% re­new­able en­ergy and source at least 5 bil­lion liters of wa­ter from cir­cu­lar sources and de­sign prod­ucts.

While we wait to see if 20% sales growth wit­nessed in Q1FY19 is sus­tain­able, there seems lit­tle doubt that rev­enue and earn­ings growth prospects of the com­pany are see­ing a re­vival af­ter a cou­ple of tepid years. While val­u­a­tions of 51.7x FY20 EPS im­plies that the near-term up­side is lim­ited, two fac­tors make P&G an at­trac­tive long-term core hold­ing: (1) huge cat­e­gory growth po­ten­tial in the Fem­i­nine Hy­giene seg­ment (~67% of sales) and po­ten­tial for mar­ket share growth be­cause of its con­sid­er­able moats; and (2) po­ten­tially huge mar­gin gains from pre­mi­u­miza­tion in Fem­i­nine Hy­giene over the longer term. In­creas­ing pace of dis­tri­bu­tion ex­pan­sion, con­tin­u­ing strong pace of cat­e­gory devel­op­ment ef­forts in schools to boost aware­ness and growth, ris­ing ad spends af­ter a lull in pre­ced­ing years, healthy pipe­line of new prod­ucts and will­ing­ness to take price cuts when­ever re­quired to boost growth are all en­cour­ag­ing de­vel­op­ments that should aid rapid growth for P&G over the long term.

Tech­ni­cal Out­look: The P&G share looks good on the daily chart for medium-term in­vest­ment. It has bro­ken out of the as­cend­ing tri­an­gle pat­tern formed on the daily chart. The stock trades above all im­por­tant mov­ing av­er­ages like the 200 DMA level on the daily chart. Start ac­cu­mu­lat­ing at this level of Rs.10011.95 and on dips to Rs.9500 for medium-to-long term in­vest­ment and a pos­si­ble price tar­get of Rs.10250+ in the next 6 months.

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