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Motilal neutral on P&G Hygiene and Healthcare, target price Rs 9,880

Gross margin contracted 530bp YoY to 59.3% (our estimate: 57.4%).

ETMarkets.com|
Updated: Aug 23, 2019, 02.03 PM IST
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In FY19, net sales grew 20% to Rs 2,950 crore while Ebitda declined 3% to Rs 610 crore and adjusted PAT grew 11.9 per cent to Rs 420 crore.
Brokerage Motilal Oswal has given a neutral rating on P&G Hygiene and Healthcare with a price target of Rs 9,880, as the company's sales growth has revived significantly due to distribution expansion and sharp ad spends in the preceding quarters.

WHAT'S CHANGED
Net sales of the company grew 21.5 per cent year on year to Rs 640 crore (our estimate: Rs 600 crore) in 4QFY19 (FY ending June) - the fourth straight quarter of extremely healthy sales growth. Even adjusted for the GST effect on sanitary napkins (which optically inflates sales but has an adverse effect on operating costs), comparable growth stands healthy at 12% YoY for 4QFY19 and 14% YoY for FY19. EBITDA, however, was down 22.8% YoY to Rs 64.8 crore (our estimate: Rs 120 crore). Adjusted PAT increased 36.5% YoY to Rs 60.80 crore (our estimate: Rs 79.50 crore), led by tax writeback.

Gross margin contracted 530bp YoY to 59.3% (our estimate: 57.4%). Ebitda margin too shrank 580bp YoY to 10.2% (our estimate: 20.2%). Ad spends were down 210bp YoY (off an extremely high base of 4QFY18), but other expenses were up by 330bp YoY. The sharp increase in other expenses (for which no explanations were provided) is surprising, given that it too has come off a very high base (+630bp YoY in 4QFY18).

In FY19, net sales grew 20% to Rs 2,950 crore while Ebitda declined 3% to Rs 610 crore and adjusted PAT grew 11.9 per cent to Rs 420 crore. A three-day increase in average inventory and a one-day increase in average trade receivables were more than offset by an eight-day rise in average creditors, pushing net working capital further into the negative. Moreover, there is no apparent increase in loans.

"Margins have remained volatile over the past few years, but sales growth has revived significantly due to distribution expansion and sharp ad spends in the preceding quarters. While the structural growth opportunity in the feminine hygiene segment (~70% of sales) remains very promising, valuations of 52.1 times FY21E EPS do not leave much room for an upside," the brokerage said.
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Disclaimer: This recommendation is analyst's own and does not represent those of economictimes.com & ETMarkets.com. Please consult your financial advisor before taking any position in the stock/s mentioned.

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