Buy This Healthcare Stock For A Target Price Of Rs 17,000: Motilal Oswal

The stock of P & G Hygiene and Healthcare Ltd., a leading healthcare company has witnessed a fall in stock in the last 4 months. The stock at the current market price of INR 14,023.90 (Closing) on 29 April 2022 has the potential for growth, according to Motilal Oswal, the broking firm.

Strong earning growth potential

According to Motilal Oswal, "Sales growth of 17.3% YoY (adjusted for a sharp one-off spike in other operating income) was extremely strong, given the unusually high base of Vicks sales in FY21 (24.1%) as well as the overall slowdown in nondiscretionary consumption. Two-year sales CAGR, which has been in the 12- 13% range in the preceding three quarters, stood at 16.6% in 3QFY22. Ad spends fell gradually from unusually high levels in FY21 (14.6% v/s 10.9% in FY20) when P&G chose to increase its ad spends globally rather than curtail marketing spends amid the COVID-19 pandemic. The company has strong earnings growth potential, led by a healthy revenue growth as well as the gradual normalization of the unusually high ad spends in the aftermath of the pandemic as well as ongoing material cost pressures."

3QFY22 Results

The brokerage stated, "Sales grew 17.3% YoY to INR 8.9b in 3QFY22 (above our estimate of INR8.5b). Adjusted EBITDA/PBT/PAT grew 21%/10.4%/8.4% YoY to INR 1.65b/INR 1.5b/INR 1.1b (below our estimate of INR 2.1b/INR2b/INR 1.5b). Two-year sales/EBITDA/PAT (adjusted) CAGR came in at 16.6%/9.2%/5.5%. Gross margin contracted by 770bp YoY to 59.2% (est. 65%). As a percentage of sales, lesser ad spends (-450bp YoY to 12.6%), lower employee costs (-120bp YoY to 6.3%), and a decrease in other expenses (- 260bp YoY to 21.8%) led to a 60bp expansion in adjusted EBITDA margin to 18.5% (est. 24.8%) in 3QFY22. Adjusted sales/EBITDA/PAT grew 9.1%/22.6%/18.7% YoY in 9MFY22."

Buy for a target price of INR 17,000

The brokerage said, "There is no significant change to our EPS estimates for FY23/FY24 even as the same for FY22 (June year-end) have been cut by ~7% given the margin miss. Two factors make P&G Hygiene and healthcare attractive long-term core holding: a) huge category growth potential in the Feminine Hygiene segment (~66% of FY21 sales), coupled with potential for market share gains on the back of considerable moats, and b) the potential for higher-margin gains from premiumization in the Feminine Hygiene segment over the long term. PGHH's best-of-breed structural earnings growth potential and improving RoE deserve premium multiples. We maintain our Buy rating with a Target Price of INR 17,000 per share (55x Mar'24E EPS).

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.