Procter & Gamble Hygiene & Health Care - Quick Take - Angel Broking

Segment leading brands put Company on a strong footing

Procter & Gamble Hygiene and Health Care Ltd (P&G) is one of India's fastest growing fast moving consumer goods companies that has in its portfolio well recognised brands like Whisper (69% of revenue) and Vicks (31% of revenue).

Investment Arguments

Lower penetration in female hygiene segment to drive growth: The current Indian female hygiene market size is of ~Rs. 1,700-1,800cr. Over the last four years, this market has grown at a CAGR of ~20%. We expect the growth momentum to continue on back of increase in penetration from the current 12% levels, while it would likely be supported by the government's campaign to promote sanitary napkins among adolescent girls. In this space, two brands capture more than 80% of the market share, with 'Whisper', a brand of P&G, being the leader with a market share of ~47-50%, and the other being Stayfree from Johnson & Johnson which has a market share of ~35-38%. In our view, P&G is best placed to benefit from the opportunities arising on the back of rising disposable incomes and increasing proportion of working women in the country coupled with its widening distribution reach.

Lower custom duty on raw material to help margin expansion: During the Union Budget FY2016-17, the government has reduced the custom duty on pulp of wood, a key raw material for P&G, from 5% to 2.5%; and on super absorbent polymer (used in the manufacture of sanitary pads, napkins and tampons) from 7.5% to 5%. This will be positive for P&G with it having a major presence in female personal care products.

Outlook and Valuation

On the top-line front, we expect the company to report ~13% CAGR and on the bottom-line front, we expect ~15% CAGR over FY2015-18E on the back of strong brands and distribution network. Further, P&G is a market leader in both of its product, ie Whisper (female hygiene segment) and Vicks (healthcare segment - Ointment, Creams, Cough Drops etc). At the current market price, P&G trades at a P/E of 39.8x its FY2018E EPS. We initiate coverage on the stock with an Accumulate recommendation and target price of Rs. 7,369, indicpating an upside of ~13% from the current levels.

Shares of PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. was last trading in BSE at Rs.6522.8 as compared to the previous close of Rs. 6507.7. The total number of shares traded during the day was 1077 in over 200 trades.

The stock hit an intraday high of Rs. 6560 and intraday low of 6375. The net turnover during the day was Rs. 7029669.

Source : Equity Bulls

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