P&G Hygiene & Health Care - long term buy?

Dear Friends,

I didnt see any thread on this wonderful company and thought of starting a new one to discuss. I tried to analyse the company myself in my own way but I invite comments from some of the more senior investors.

I though P&G stands at the top of the consumption story of India and after analysing a few companies in this space thought this is most close to a WB type investment. (In fact I found out he has actually invested in the global company later!)

2013 2012 2011 2010 2009 Sep-13 Jun-13
COGS % 44.2 42.2 39.5 31.4 31.0
Employee cost % 5.9 5.0 5.0 8.0 7.7
Advertising % 9.5 10.6 11.7 12.5 11.6
Trade Incentives % 7.5 7.4 6.7 5.4 4.4
Royalties % 4.7 4.9 5.1 6.4 5.3
PBT % 17.0 17.2 17.9 26.2 30.0 17.7 18.2
Sales growth % 30.0 29.6 11.1 16.6
Price cuts till year end of 2011 have caused COGS to increase from 31% to 44% however volume growth in last 2 quarters suggest no further need to cut prices

Last 2 quarters have yielded an above average PBT of 17.5%+ corroborating the above fact

P&G is in the business of Sanitary Napkin which is the most under-penetrated FMCG (only 15-20% penetration) item - implying that the market can scale up considerably

At an overall penetration level of 80% the sales can increase 5 times plus the benefit of higher end products such as ultra thin adding to margins

Adding to this usage in tier 1 is likely to increase as women use the products between 2-3 times a day as in Western Developed markets

Sales growth in the last 2 years despite no price cuts have been 25% +.Volumes have increased by over 25% in the last 5 years CAGR

Net debt of the company is 0

Management quality is better than any other company - completely professionally managed

Company is the leading player in the sanitary napkin space with almost 60% market share and hence is in a better position to control prices

Company has already developed a pipeline of products in the international markets which it can launch in the Indian market as the market develops.
R&D expense is likely to be low due to this reason

ROCE is 30% + and is likely to improve as the business model is very asset light

Healthy growth is going to enable a spread of fixed expenses such as marketing and distribution thereby improving margins

India will have one of the youngest working age population by the year 2021 after which it will start reclining - currently menstruating population is 355m which will increase till the year 2021

WC cycle is extremely efficiently managed. If cash and loans to group companies are excluded, the company is net negative working capital

Extremely strong brand recall making it difficult for new players to make an impact unless they are willing to spend heavily on advertising

Product is a necessity and during times of recession, a woman who has started using these products is less likely to switch back to traditional methods

The market share of the brand is said to be expanding over the last few years

Governent trying to increase awareness and raise consumption by offering free samples of products

A lot of new entrants and competition from the likes of Unicharm and SCA is only going to intensify thereby putting pressure on margins (however none have the reach or distribution capacity

The company can decide to raise royalties on an ad hoc basis which will affect margins (royalty in 2005 - 2.5% in 2013 is 5%)

PE ratio of 46 means that the growth is fully priced in - PEG > 2

Government may decide to levy excise duty on sanitary napkins again in the future which will impact the sales growth and margins

The male female ratio continues to decline in our country

Relaunch of Old spice brand could drain the profitability of the company in the short term

Usage of unorganized unbranded products pushing prices down

Buy but at a PE ratio of between 35 and 40 times

Target price to buy should be approx 2400-2700
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Senior boarders - Ayush, Hitesh, Donald, Hemant - Would love to have your comments on this company!

This company is a market leader in female hygiene segment . Whats the current view on this company ?

Also, As per the Nicholas Hall Year Book 2017, Vicks is the second largest OTC brand in India.

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It seems that they have ramped up their efforts: they are increasing distribution, launching new products and spending more on A&P. Things should get better.

Following are Motilal Oswal Reports for FY 2019. Note that FY ends for P&G at June 30.
Company Update Jan 2019.pdf (431.8 KB)
2QFY19 Results Update.pdf (433.2 KB)
3QFY19 Results Update.pdf (511.3 KB)

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Thanks for the update @sujay85

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Any views on this @CMP?

I would’ve waited and watched. It is trading at high multiples. Going forward, if Govt. Indeed regulates price of Sanitary Napkins, then there will have high chances of PE contracting, as their OPM will reduce.

P&G US has a P/E ratio of 79.15, it is one of the high quality and high PE stocks in USA also.

I am aware P&G Health and Hygiene has sanitary napkins as its major product. Is Pampers also part of it?
Also, surprised to see another P&G Health trading? Any idea what is that?

These MNC subsidiaries are so confusing…I was expecting P&G hygiene to crash more with capping rules, it didnt.

No, P&G has unfortunately kept it in an unlisted company.

Merck India has been renamed.

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Market perhaps expects Govt. to reconsider its decision, like they are doing on other measures. Anyway it seems that premium hygiene products will remain excluded.

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US P/E is 26 however - expensive but not insane like ours.

Maybe he was referring to this:

P&G USA took a one time charge last quarter writing down goodwill on Gillette acquisition, to the tune of $ 8 billion, thus the PE looks inflated.

Source (behind a paywall)


How the company is funded? Refer to the below image


  • NIL Borrowings which one may not notice as the same is INVISIBLE in the picture :blush:
  • Primarily funded by Equity and Suppliers money (Payables have grown from 16% of TL in FY 2009 to 34% of TL in FY 2019……> Supplier’s Power: Weakened over the observed period).What’s the proof? Refer the below image for Cash Conversion Cycle:

How the company has used the funds?

Observations: Major categories are as below-

  • PPE: Declined from 20% of TA in FY 2009 to 14% of TL in FY 2019. The Primary Reason is that the Capex is less than the Depreciation Expense? Why Capex is LOW? Reason: TBD
  • Cash & Equiv: In FY19, this category occupies 33% of TA and used to be 13% in FY09. Inference – Real cash-generating business. Where are they parked? Ă  Mostly as bank Deposits What’s the purpose? → Business is generating cash on a consistent basis. Even Capex is lesser than the Depreciation.
  • Inventory: 11%.
  • Receivable: 12%.
  • Loans & Advances: 12%

Does the company make money? Yes, it has too much cash flow problem as mentioned in the subsequent sections.


  • Sales/NP/ROE CAGR is not consistent
  • NP CAGR is lower than Sales CAGR. Reasons: TBD
  • Sales/NP/ROE seems to be improving in the recent results (TTM: From FY18 to FY19).
  • The most important observations are ROE jumped to 46% in recent times and Shareholder’s Equity (SE) dropped by -18% 3 Year back. What’s really happening?

As evident from the below image, 65% of SE (Shareholder’s Equity) was parked in Financial assets (FA), which will return sub-Par returns as compared to Operating assets. In turn, the ROE was suffering. With a Big-Bang, the company reduced the SE by 1000+ Cr by declaring a dividend of 1500+Cr. in FY17. The trend of ballooning FA in overall SE is evident once again from FY17 onwards.

Net result – ROE improved tremendously as compared to previous years. See the impact of the above action in below image that x-rays ROE constituents (both the asset turns and leverage improved to scale up the ROE from 26% in FY 16 to 46% in FY19):

How profitable is the business?

What is does with the money that it generates? Watch the Dividend amount in FY17 in the below image. Also, see the CAPEX requirement of the business.

How about Net Profit versus Operating Profit Versus FCF-E? Doe the business commands the market’s respect?

Valuation :

Homework for all of us :blush:

Disclosure: No investment. Just sharing the notes for feedback/learning and improving my equity analysis process.


Nice Analysis. What is the future growth drivers for P&G HH with currently 3 brands - Whisper, Vicks and Old Spice? What other brands can P&G introduce in India via this entity?

Also, what was the reason for sudden high dividend in 2017. Instead they could have distributed among years to benefit their long their investors rather than those who enter just for dividends and leave?


Given their track record I don’t expect any more addition. They could’ve launched Pampers but they launched it through an unlisted arm. P&G India has a clumsy way of allocating products to its 3 listed arms. What is Old Spice, a male grooming brand doing in a Health & Hygiene focused company!

And, why Merck portfolio wasn’t merged with PGHH when there was so much theme overlap. Look at HUL: GSK consumer has been merged with HUL itself!

Also, Oral B is a dental care brand which could again fit into PGHH portfolio, but they’ve kept it under Gillette, which should’ve only Old Spice!

Honestly, I like many things about P&G: branding, distribution, capital allocation, governance etc, and they have created wealth, but their India listing structure is too messy.

I can understand the rationale. P&G is simply unlocking value to the shareholders of the parent company. So, if I ever decide to invest overseas then P&G would be one of my initial investments.