Shares of Procter & Gamble Hygiene & Health Care Ltd. have fallen nearly 3% over the past two days. The company’s June quarter results (Q4FY22) announced on Tuesday during market hours failed to impress. The company follows a July to June financial year.
On a year-on-year basis, key metrics such as operating revenue, margin and profit after tax declined. Higher commodity costs were a headwind last quarter. P&G Hygiene expects volatility and uncertainty in the commodity to continue in the near future.
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In Q4, revenue, after adjusting for one-time intercompany inventory sales, fell 3.7% year-over-year. This comes against the backdrop of the company posting consistent revenue growth in the last seven quarters.
In Q4, the base was higher as hit by the second wave of coronavirus in the same quarter of last year, which then was likely to boost the sales of Vicks.
Nevertheless, on a two-year compound annual growth rate (CAGR) basis, revenue growth in Q4FY22 stood at 9.2%. This is lower than the 11-17% CAGR range seen in the last three quarters.
In addition, gross margin fell 1,556 basis points (bps) year-on-year to 52.5%, but this was partially offset by savings in advertising and promotional (A&P) expenses. One basis point is 0.01%. Result: Ebitda (earnings before interest, taxes, depreciation and amortization) margin was down only 66 bps.
In FY22, decline in A&P expense as a percentage of revenue assisted performance at Ebitda margin level. The company also implemented cost control measures. A further fall in A&P expenses will provide some relief to margins.
Further earnings growth is likely to be driven by the feminine care segment, which is a significant revenue contributor to the Company and includes the Whisper brand. Analysts at Motilal Oswal Financial Services see huge growth potential in this segment and also expect a substantial increase in market share. Moreover, there is scope for higher margin gains from premiumization in this vertical over the long term, he said.
P&G Hygiene has declared a dividend of 160 per share in FY22. This represents a dividend payout of about 90%, which remains strong. According to Motilal Oswal, the return on equity and return on capital employed are 80.7% and 86.7% respectively. Based on the broking firm’s FY24 earnings per share estimate, shares of P&G Hygiene now trade at around 47 times. Appraisals are not cheap at all.
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