& Healthcare Ltd.
owns 69% of the company.Procter & Gamble Hygiene and Health Care Limited
is engaged in the manufacturing and selling of branded packaged fast moving
consumer goods in the femcare and healthcare businesses and is the market
leader in both.
|Income Statement & Cash Flows
||Sales & Profits
CAGR 5 yr: 19.14%;3 yr: 20% & currently: 29.6%;PAT CAGR 5 yr:
8.37%;3 yr: 0.42% & currently: 20.16%.There has been decline in profit
margins and growth in profits in the last 3 years.In June 10 the profit
barely increased from last year due to increase in advertising & sales
promotion cost, unexpected levy of excise duty(1.53% of gross sales as
compared to .13% last year)(only last quarter) and start up expense of a new
manufacturing line.In June 11 the profit declined by 16% due to increased raw
material cost(jump of 8% poins),unexpected levy of excise duty(3.57% of gross
sales)(for 9 months) and increased advertising and sales promotional cost.In
june 12 the senario improved but the raw matirial cost increased by 3%
have accelerated,but profits have not followed the trend.The reasons are
price reduction to boost sales in rural areas,high raw material cost(which is
manily because of introduction of Whisper Choice Ultra(has gel locking
technology) in feb10,it was introduced at a price of Rs.30 for a pack of
6),high excise duty in FY10,high promotion expense in promoting mainly
Whisper Choice Ultra and set up cost for new manufacturing lines in Goa
factory.The gross margin has declined over the years because of price
reduction done to boost sales and large increase in raw material cost as
compared to increase in sales,due to strategic low pricing of Whisper Choice
yr CAGR 8.04% in line with PAT growth
rate.The cash flow has not followed PAT Trend and has varied widely in last 3
years,but it has remained historically close to PAT and the current picture
also is no different.
followed a persistant declining trend,it has declined from 71.62% in June 07
to 57.83% in June 07.
no long term debt and very little short term debt
|Plant & Machinery
term average 30% of Assets; currently 28.46% of Assets.
company has a realtively small % of assets as fixed assets.
term average 64.55% of Assets; currently 67.4% of Assets.The company has
always maintained a current ratio above 2 in last 5 years.
working capital is really high as a % of assets in absolute terms and it has
increased as % of assets over the years.The day to day operations of the
company is highly capital intensive.
company has no investments.
|Addition to Networth
Yr CAGR at 19.08%; 3 Yr 14.18%; pace has decreased in last 3 years.
pace at which the company has added to its reserves has declined due to
worsening of the profit picture in last 3 years.
capital has more than doubled in last 5 years.Net fixed assets is 1.6 times
what it was 5 years ago.ROIC has declined from 38.6% in June08 to 26% in
historical picture looks to have detoriated because of the company's decline
in profits in recent years.But when we look at it from the strategic point of
view the company has forgone the gain over short-term to increase the size of
the pie (market) and create a brand loyalty through significant investment in
marketing and price reduction to encourage the purchase of its product.These
factors when seen along with the opportunity size give an impression that the
company's financial performance will probably improve going forward and ROIC
picture will probably improve.
|Return on Incremental Networth
5Yr incremental Return ~14.3%
again has been ordinary due to recent profit picture.
average 44%, 3 Yr average 43% and currently at 40.3%.
company has maintained a flat divident payout policy in last 4 years.so,as to
have enough funds to invest in the new manufacturing facility in Goa.The
stock has given below average return in last 3 years and has barely moved in
last one year.This should probably improve with improvement in business
scenario,but looking at the high P/E ratio it currently commands outstanding
return expectation would probably not be logical.
average 3%,it has followed flat dividend payout policy in last 4 years.
|Total Returns growth
Yr CAGR at 27.8%; 3 Yr 12.17%; in last 1 yr 3.22%
||derives ~62% of revenue from
Female Hyigine and 38% from Health care segment.
||It is the
market leader in Sanitary Napkin segment (54.1%)and in cold & cough cure
napkin is something which is a necessity and once a consumer is satisfied
with the product,price does not remain the deciding factor(atleast for
customers that belong to middle class and above).It is a recurring need,the
product gets used up in less than a month and it forms an insignificant
portion of the consumer budget.Thus giving it price inelasticity.All in all
it owns a consumer monopoly.In cold & cough cure segment it is the most
popular brand and any one looking for instant relief generally opts for vicks
as it is easily available and because of the fact that it forms a small
portion of consumer's budget it has got a decent price inelasicity.The sales
however are heavily dependent on weather and advertising.
major,1 minor and few new entrant trying
to establish their footing in Sanitary Napkin Market.In health care
market the competitive intensity is very high.
Sanitary Napkin segment the competitive landscape is changing with new
players like she comping in and Johanson & Johanson's Stayfree is giving
a tough fight in both the urban and rural markets.In urban markets it is
targeting the affluent and upper middle class by providing samples in ladies
washrooms and in rural market its low priced (Rs.22),well distributed
stayfree cotton pads are giving good competition.In healthcare market the
competitive intensity is very high and the retailer(who is the druggist in
most cases) plays an important role and he suggest the vacine that provides
him highest margin.
2007-09 spent on building new health care facility;New manufacturing line in
2010 in Goa.
capital allocation seems rational as Vicks being one of the most trusted
brand,the Healthcare market being underpenetrated,the tax incentive of having
a drug factory in Baddi and the price cuts required to induce the sale of
Sanitary napkins, the Baddi plant would have been the highest NPV project
then.The recent 2010 extention of Goa manufacturing unit is for production of
Sanitary Napkins.Given the fact that company has undertaken several powerful
marketing initiatives to drive sales of Napkins and cut prices these efforts
are highly probable to increase sales and hence yeild increased return for
the company in years to come,Huge opportunity size and the changing
demographics give an impression that the capital allocation here too was
is after taking into account the two manufacturing facilities it has come up
with.It is fairly low and the mantainance figure is even better.
||The working capital as a
percentage of sale currently is 36.21%,slightly higher than the average of
35.62%.The cash as a % of total assets has been 26.16% compared to the
average of 31%.The inventory days has declined in the last 5 years and
currently is 71 as compared to average of 80.The debtor days is currently 11
slightly higher than average of 9.
||The company's day to day
operation is highly capital intensive.The company has mantained a current
ratio close to 2 in last 5 years.Historically company has held significant
cash.Even with its parent's reputation of being the largest FMCG company
& having high quality earnings the high working capital requirement and
having so much of idle cash is questionable.The inventory days and debtor
days are in line with peers and the time series does not indicate determent.
|Fixed asset efficiency
||The fixed asset
turns have gone up in last 5 years from 5.23 in June 07 to 6.54 in June 12.In
the same period capital turns have gone no where,it declined initially and
then rose to the previous figure.
||The fixed asset
turns has followed a wave like pattern in last 5 years.The capital turns are
far lower and has barely been what it was 5 years back,it infact
declined,even when the fixed asset turns peaked and has improved
recently.This again points towards the high working capital issue.The average
as well as the current figures are far lower than peers like colgate and GSK
Strategy & Strong R&D Support
innovative marketing strategies(which includes Point of Market Entry (POME)
stage i.e. when girls start menstruation for years now every year increasing
the number it reaches,door to door marketing,change when you want in
2009,Dr.Vicks,'The Blanket of Warmth etc.) and the strong R&D support
have been the key varients.
POME it has gone to schools in both rural as well as urban areas and
distributed the strategically fit product depending on the locality.With its
door to door marketing initiative the company has been able to penetrate the
barriers for lower middle class customers and is educating them about the
importance of sanitary napkin.Since in Sanitary napkins once tried comfort
takes the priority over price the company adds significant number of loyal
customers every year,who through increased consumption and word of mouth
publicity are going to further drive growth.In healthcare market where the
sale is highly correlated with the amount of rainfall and the severity of
winter the company has been able to dirve sales at far higher rate than the
industry average due to innovative advertising and advertising mediums that
target the maximum number of right customers like Billboards and radios,which
target the travelling population who are more inclined to buy OTC products
rather than consulting the doctor to get short term relief.The strong R&D
support of parent is always there to introduce innovative products and to
provide efficient ways to produce products.
|Key Risks / Monitorables
Competition Intensity; RM prices;huge advertising needs
competitive intensity is very high in the cold & cough cure segment.The
raw material prices have gone up significantly as a percentage of sale in
last 2 years.
competition is a major threat in the healthcare market and the competitive
intensity seems to be building up in sanitary napkin segment too.The raw
material cost is a major concern as the company has launched a few high
quality products at economic price.It is also vulnerable to cotton and
menthol price volatility.The High advertising is required in both the
sengments, in sanitary napkins because it is very underpenetrated and in
Vicks less because of underpenetration and more because of increased competition.