1

SYNOPSIS

Procter & Gamble Hygiene and Health Care Limited, a fast moving consumer goods company, manufactures, markets, and distributes health care and feminine hygiene products in India.

The Company has in its portfolio P&G's Billion dollar brands such as Vicks & Whisper. With a turnover of Rs. 500+ crores

P&G products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores and drug stores.

P&G is the second largest FMCG Company and also leading a best position in world.

Company’s product occupies major market share from Vicks Vaporub and Whisper.

The top line of the company is expected to grow at a CAGR of 16% over 2010 to 2013E respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 10019.00 1989.30 1508.80 46.48 39.07

FY 12E 12323.37 2229.32 1638.64 50.48 35.97

FY 13E 14048.64 2643.90 1961.59 60.43 30.05

Stock Data:

Sector: FMCG

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 2172.50/1460.00

Volume (2 wk. Avg.) 205.00

BSE Code 500459

Market Cap (Rs.In mn) 58947.36

Share Holding Pattern

1 Year Comparative Graph

Procter & Gamble

Hygiene & Health Care Ltd

BSE SENSEX

C.M.P : Rs.1816.00 Target Price : Rs. 2088.00 Date : 16th Jan 2012 BUY

PROCTER & GAMBLE HYGIENE & HEALTH CARE

LTD

Result Update: Q2 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Procter & Gamble 1816.00 58947.36 46.48 39.07 9.81 225.00

HUL Ltd 386.15 834487.4 11.67 33.09 31.68 650.00

Nestle India 3998.00 385470.0 96.88 41.27 45.06 485.00

ITC Ltd 209.10 1630177.0 7.08 29.53 10.25 445.00

Investment Highlights

Q2 FY12 Results Update

Procter & Gamble Hygiene & Health Care Ltd disclosed results for the quarter

ended Sep 2011. Net sales for the quarter moved up 32% to Rs.3020.50 million as

compared to Rs.2282.20 million during the corresponding quarter last year.

During the quarter, the company has reported Net Profit increased to Rs.427.80

million from Rs.313.60 million in previous year same quarter. The Basic EPS of

the company stood at Rs.13.18 for the quarter ended Sep 2011.

Quarterly Results - Standalone (Rs in mn)

As At Sep-11 Sep-10 %change

Net sales 3020.50 2282.20 32

PAT 427.80 313.60 36

Basic EPS 13.18 9.66 36

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Basic EPS of the company stood at Rs. 13.18

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Break up of Expenditure

Expenditure for the quarter stood at Rs.2670.70mn, which is around 39% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 41% of the sales of the company and stood

at Rs.1234.30mn from Rs.707.40mn of the corresponding period of the previous

year. Advertising & Sales Promotion cost increased 29%YoY to Rs.629.00mn from

Rs.488.80mn and accounts for 21% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 16% and 14% respectively from 20% and

14% respectively of the same period of the last year.

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Company Profile

Procter & Gamble Company (P&G) was founded in 1837 and is headquartered in

Cincinnati, Ohio. P&G, together with its subsidiaries, provides branded consumer

goods products worldwide. Procter & Gamble is the largest maker of consumer

packaged goods in the world and the largest advertiser in the United States. The

company is also credited with billion Dollar Company and also many business

innovations. P&G products are sold in more than 180 countries primarily through

mass merchandisers, grocery stores, membership club stores and drug stores. P&G

continue to expand presence in other channels including department stores and “high

frequency stores,” the neighborhood stores which serve many consumers in developing

markets. We have on-the-ground operations in approximately 80 countries.

P&G market environment is highly competitive, with global, regional and local

competitors. In many of the markets and industry segments in which company sell

co’s products, P&G compete against other branded products as well as retailers’

private-label brands.

Product

Health care

Vicks is India’s No.1 Cough & Cold Brand. It created the cold & cough Over-the-

Counter (OTC) category in India way back in 1952 and has led the category till date.

Today it has completed more than 50 years in India. Its current portfolio in India

comprises Vicks Action500+, Vicks VapoRub, Vicks Cough Drops, Vicks Formula 44

Cough Syrup and Vicks Inhaler. It was rated as ‘India’s Most Trusted Brand’ by the

‘Advertising & Marketing’ Magazine and continues to be on top of the charts of Brand-

Equity surveys till date.

Vicks VapoRub

Vicks Inhaler

Vicks Formula 44

Vicks Cough Drops

Vicks 500+

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Feminine care

Indian women share a special relationship with Whisper, since it spells ‘Total Freedom

and Protection’ for them especially during those crucial days of the month.

Whisper

Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 9044.60 10019.00 12323.37 14048.64

Other Income 286.50 363.80 454.75 536.61

Total Income 9331.10 10382.80 12778.12 14585.25

Expenditure -6744.40 -8393.50 -10548.80 -11941.35

Operating Profit 2586.70 1989.30 2229.32 2643.90

Interest -0.20 -0.30 -0.21 -0.22

Gross Profit 2586.50 1989.00 2229.11 2643.68

Depreciation -250.30 -221.60 -254.84 -280.32

Profit before Tax 2336.20 1767.40 1974.27 2363.36

Tax -538.60 -258.60 -335.63 -401.77

Profit after Tax 1797.60 1508.80 1638.64 1961.59

Equity Capital 324.60 324.60 324.60 324.60

Reserves 5021.80 5681.70 7320.34 9281.93

Face Value(Rs.) 10.00 10.00 10.00 10.00

Total No. of Shares 32.46 32.46 32.46 32.46

EPS 55.38 46.48 50.48 60.43

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 2348.00 2450.60 3020.50 3745.42

Other Income 83.70 114.60 127.70 117.48

Total Income 2431.70 2565.20 3148.20 3862.90

Expenditure -1884.80 -2208.70 -2670.70 -3183.61

Operating Profit 546.90 356.50 477.50 679.30

Interest 0.00 -0.20 0.00 0.00

Gross Profit 546.90 356.30 477.50 679.30

Depreciation -57.30 -62.10 -64.30 -70.73

Profit before Tax 489.60 294.20 413.20 608.57

Tax -100.20 62.10 14.60 -121.71

Profit after Tax 389.40 356.30 427.80 486.85

Equity Capital 324.60 324.60 324.60 324.60

Face Value(Rs.) 10.00 10.00 10.00 10.00

Total No. of Shares 32.46 32.46 32.46 32.46

EPS 12.00 10.98 13.18 15.00

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 55.38 46.48 50.48 60.43

EBITDA Margin (%) 28.60% 19.86% 18.09% 18.82%

PAT Margin (%) 19.87% 15.06% 13.30% 13.96%

P/E Ratio (x) 32.70 39.07 35.97 30.05

ROE (%) 33.62% 25.12% 21.43% 20.42%

ROCE (%) 43.70% 29.43% 25.83% 24.60%

EV/EBITDA (x) 22.73 29.63 26.44 22.30

Book Value (Rs.) 164.71 185.04 235.52 295.95

P/BV 11.00 9.81 7.71 6.14

Charts:

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Outlook and Conclusion

At the current market price of Rs.1816.00, the stock is trading at 35.97 x FY12E and 30.05 x FY13E respectively.

Price to Book Value of the stock is expected to be at 7.71 x and 6.14 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.50.48 and Rs.60.43 respectively.

The Company has in its portfolio P&G's Billion dollar brands such as Vicks & Whisper. With a turnover of Rs. 500+ crores

P&G products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores and drug stores.

P&G is the second largest FMCG Company and also leading a best position in world.

Company’s product occupies major market share from Vicks Vaporub and Whisper.

The top line of the company is expected to grow at a CAGR of 16% over 2010 to 2013E respectively.

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On the basis of EV/EBITDA, the stock trades at 26.44 x for FY12E and 22.30 x for FY13E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.2088.00 for Medium to Long term investment.

Industry Overview

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer

packaged goods. Items in this category include all consumables (other than

groceries/pulses) people buy at regular intervals. The most common in the list are

toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,

packaged foodstuff, household accessories and extends to certain electronic goods.

These items are meant for daily of frequent consumption and have a high return.

A major portion of the monthly budget of each household is reserved for FMCG

products. The volume of money circulated in the economy against FMCG products

is very high, as the number of products the consumer use is very high.

Competition in the FMCG sector is very high resulting in high pressure on margins

FMCG companies maintain intense distribution network. Companies spend a large

portion of their budget on maintaining distribution networks. New entrants who

wish to bring their products in the national level need to invest huge sums of

money on promoting brands. Manufacturing can be outsourced. A recent

phenomenon in the sector was entry of multinationals and cheaper imports. Also

the market is more pressurized with presence of local players in rural areas and

state brands

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Scope of the Sector

The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest

sector in the economy. A well-established distribution network, intense competition

between the organized and unorganized segments characterizes the sector. FMCG

Sector is expected to grow by over 60% by 2010. That will translate into an annual

growth of 10% over a 5-year period. It has been estimated that FMCG sector will

rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010. Hair care,

household care, male grooming, female hygiene, and the chocolates and

confectionery categories are estimated to be the fastest growing segments, says an

HSBC report. Though the sector witnessed a slower growth in 2002-2004, it has

been able to make a fine recovery since then.

Growth Prospects

With the presence of 12.2% of the world population in the villages of India, the

Indian rural FMCG market is something no one can overlook. Increased focus on

farm sector will boost rural incomes, hence providing better growth prospects to the

FMCG companies. Better infrastructure facilities will improve their supply chain.

FMCG sector is also likely to benefit from growing demand in the market. Because

of the low per capita consumption for almost all the products in the country, FMCG

companies have immense possibilities for growth. And if the companies are able to

change the mindset of the consumers, i.e. if they are able to take the consumers to

branded products and offer new generation products, they would be able to

generate higher growth in the near future. It is expected that the rural income will

rise in 2007, boosting purchasing power in the countryside.

However, the demand in urban areas would be the key growth driver over the long

term. Also, increase in the urban population, along with increase in income levels

and the availability of new categories, would help the urban areas maintain their

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position in terms of consumption. At present, urban India accounts for 66% of total

FMCG consumption, with rural India accounting for the remaining 34%. However,

rural India accounts for more than 40% consumption in major FMCG categories

such as personal care, fabric care, and hot beverages. In urban areas, home and

personal care category, including skin care, household care and feminine hygiene,

will keep growing at relatively attractive rates. Within the foods segment, it is

estimated that processed foods, bakery, and dairy are long-term growth categories

in both rural and urban areas

Indian Competitiveness and Comparison with the World Markets

The following factors make India a competitive player in FMCG sector:

Availability of raw materials

Because of the diverse agro-climatic conditions in India, there is a large raw material

base suitable for food processing industries. India is the largest producer of

livestock, milk, sugarcane, coconut, spices and cashew and is the second largest

producer of rice, wheat and fruits &vegetables. India also produces caustic soda and

soda ash, which are required for the production of soaps and detergents. The

availability of these raw materials gives India the location advantage.

_______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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Firstcall India Equity Research: Email – info@firstcallindia.com

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