Hold P&G Health Ltd For Target Rs.4500 - ICICI Direct
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Steady quarter; focus on growth in core VMS therapy
About the stock: Procter & Gamble Health is a leading pharma cum OTC company with key focus on vitamins, minerals, supplement (VMS) category.
* It has legacy brands in the VMS category like Neurobion Forte, 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
Q4FY22 Results: Domestic business grew 8% whereas the Sri Lanka business was impacted due to challenging environment. (note: it follows July-June fiscal year).
* Sales were up 3.7% YoY to | 295.9 crore
* EBITDA was at | 59.8 crore, up 23.4% YoY with margins at 20.2%
* Consequent PAT was at | 41.19 crore (up 21% YoY)
What should investors do? P&G Health’s share price has grown by ~3.5x over the past five years (from ~| 1200 in September 2017 to ~| 4171 levels in August 2022).
* We maintain HOLD on the stock as we look for above-average traction in core VMS portfolio as well as maintaining momentum in non-core brands
Target Price and Valuation: Valued at | 4500 i.e. 32x P/E on FY24E EPS of | 140.6.
Key triggers for future price performance:
* P&G’s strong distribution channel and strong brand recall are likely catalysts for future growth besides the performance of ex-VMS portfolio
* 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 a preventive care mechanism due to increased health awareness in a post-Covid world
Alternate Stock Idea: Apart from PGHL, in our healthcare coverage we like Abbott.
* Abbott India is one of the fastest growing listed MNC pharma companies. It has outperformed the industry on a consistent basis in women’s health, GI, metabolic, pain, CNS among others
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