September 16, 2005

P&G Hygiene & healthcare Q4 net up 203%

P&G Hygiene just declared great results. I have always liked their business (I used to work in the FMCG industry and have seen their sales organisation closely). The topline growth is encouraging with good growth in the Vicks and Feminine hygiene categories.

As expected, cash flow from business is very good as the expense on the main asset - brands , is expensed through advertising. Fixed asset / Wcap requirements are low ( and asset are being worked more through contract manufacturing for the parent company ). The company has been declaring good dividends for quite some time.

The companies has a very clean balance sheet , just 80 cr worth of Fixed asset and 165 odd cr of WCAP (228 crs being cash , effectively meaning -ve working capital ) for generating almost 500 cr + net income. Net margins are in 15 % range ( compared to 7-9 % for the FMCG industry ). This shows that the company has good pricing power and sustainable competitive advantage and a very lean balance sheet.

The stock is pricey though, selling at a PE of about 30. I have looked at the company in the past but never bought it as it was not comfortable with the management. P&G global has opened a subsidiary which is not listed. P&G hygiene pays royalty to the parent ( whereas the indian shareholder pays for the advertising and brand building ). In addition all new brands are being introduced through the 100 % owned subsidiary.

Difficult to trust the management to be fair to the indian shareholder ...they could pull a fast one like the other MNC of taking the company private and leaving the indian minorty shareholders in a lurch. Maybe i am being paranoid , but then there a lot of other companies to invest , so why take chances ..

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