Neutral P&G Hygiene and Healthcare Ltd For Target Rs. 17,000 By Motilal Oswal Financial Services Ltd
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Focusing on sustainable growth; rich valuation limits upside
* During the analyst meet, the management highlighted: (a) potential for double-digit sales growth, particularly in the feminine hygiene segment, in which per-capita spending is currently only one-sixth of that in China; (b) the possibility of accelerating revenue growth following a 1.5x increase in distribution reach compared to three years ago; (c) growing momentum in new portfolio innovations such as Whisper Ultra hygiene products and Vicks Roll-On for headaches; and (d) cost savings to continue (savings of INR1.13b in FY24, ~3% of sales).
* PG has delivered sales/EBITDA/APAT growth of 8%/13%/15% in FY24. Gross margin expanded by 400bp YoY to 61.6% during the year, out of which 260bp was reinvested in A&P (up 33 % YoY in FY24). EBITDA margin moderated by 120bp YoY to 23.4%.
* The company has delivered growth over the years through a strong portfolio of products, superior packaging, brand communication, and retail execution. It has delivered a CAGR of 7%/10%/11% in sales/EBITDA/ APAT over FY19-24. EBITDA margin has improved by ~270bp over the same period.
* The stock trades at an expensive valuation of 62x/54x FY25E/FY26E EPS. We reiterate Neutral rating on the stock.
Valuation and view
* There is no change in our estimates after the analyst meet.
* Two factors make PG an attractive long-term core holding: 1) robust growth potential in the feminine hygiene segment (65-68% mix of FY24 sales) and the potential for market share gains, aided by strategic initiatives, including the fortification of significant market advantages, and 2) potential for higher margin gains from the long-term trend of premiumization in the feminine hygiene segment.
* With a portfolio of essentials and healthcare, PGHH focuses on product innovation-led customer acquisition. Penetration play would continue, but at a stable pace, despite the high scope of user additions. The stock trades at expensive valuations of 62x/54x FY25E/FY26E P/E. We do not see any medium-term trigger. Reiterate Neutral with a TP of INR17,000 (55x Jun’26E EPS).
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