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Revenue beat but margins miss; focus on power brands continues…

About the stock: Procter & Gamble Health is a leading pharma cum OTC company with key focus on the vitamins, minerals, supplement (VMS) category.

* It has legacy brands in the VMS category like Neurobion, Polybion, Evion (all vitamins), Livogen (iron supplement), Nasivion (nasal decongestant), Seven Seas (vitamin- substitute for malt based health drinks)

* The company was earlier known as Merck Ltd and was part of Merck KGaA, Germany. In 2018 it (as a consumer health business) was acquired by P&G

Q3FY23 Results: Beat on revenue front but margins were a big miss

* Revenue grew 19.8% YoY to | 321 crore

* On the operational front, EBITDA grew 15.8 % YoY to | 79.7 crore whereas margins were at 24.8%

* PAT came in at | 59.2 crore

What should investors do? P&G Health’s share price has grown at 6.26% CAGR over the past three years.

• We maintain BUY rating as earnings reflect sustained efforts to regain momentum via improved mix and productivity initiatives

Key triggers for future price performance:

* P&G’s sustained efforts to strengthen power brands in VMS and other therapies via various patient engagement and commercial campaigns and doctors’ involvement

* MNC pharma traits like strong brand stickiness, growth, earnings visibility, consistency (despite quarterly fluctuations) in performances, strong b/s

* Key differentiator for PGHL is that its core category is VMS. As a therapeutic category, this is likely to be rediscovered as daily supplements due to increased awareness in a post-Covid world

Alternate Stock Idea: Apart from PGHL, in healthcare coverage we like Ajanta.

* It is mainly into domestic as well as exports formulations with focus on launching maximum number of first time launches

* BUY with a target price of | 1520

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