P&G India's Margin To Remain Under Pressure Due To Sustained Inflation

Procter & Gamble India expects that a complete recovery in margin will take at least three to four more quarters, as material prices haven't reduced as expected.

In its first-ever analyst and media call on Friday, the management of the consumer goods maker highlighted their "cautiously optimistic" stance about the near-term market outlook due to sustained commodity inflation and a weak monsoon, which pose a risk to improving rural sentiment.

"The commodity pressures remain high," said Gautam Kamath, chief financial officer at Procter and Gamble India. "Most of the commodities that impact us have not yet demonstrated the lasting downward trend, and given the current volatility in prices, we expect the recovery in margins, if any, to take longer than the immediate 9–12 months."

In the foreseeable future, the local arm of the U.S.-based company expects to grow its bottom line ahead of its top line, he said. "This will help to fund innovation, raise the bar on superiority, and absorb the macro headwinds."

P&G India operates four separate entities, including two listed companies—Gillette India Ltd. and Procter & Gamble Hygiene and Health Care Ltd.

In the quarter ended June, Gillette India—which sells personal grooming and oral care products—registered sales of Rs 619 crore, up 12% versus a year ago, while its profit after tax increased 36% to Rs 92 crore.

Procter & Gamble follows the July-to-June financial year.

For the entire fiscal, Gillette's profit rose 23% to Rs 356 crore, while sales were up 10% to Rs 2,477 crore, according to its regulatory filing.

A five-pronged strategy has worked in favour of the company, despite headwinds from macroeconomic challenges and commodity inflation during the year, said P&G India's Managing Director, LV Vaidyanathan.

"These are portfolios of daily use products, irresistible superiority, productivity to fuel investments, constructive disruption, and an agile and accountable organisational structure and culture," Vaidyanathan said.

The same strategy has also boosted growth for Procter and Gamble Hygiene and Health Care. In the quarter ended June, the company's profit after tax tripled to Rs 151 crore over the previous year, while sales came in at Rs 852 crore, up 10%. Excluding the one-time income, sales grew by 3%.

"Profits have bounced back for both its listed companies despite the larger industry headwinds," said Kamath.

The company said that consumption during the April-June quarter was the fastest in the last six quarters with the softening of inflation.

Kamath also said there are visible signs of green shoots in the rural economy, even as he remains concerned about sustaining the growth due to the possible impact of weak monsoons and renewed inflation.

The company, however, would continue to focus on premiumisation, particularly in the feminine hygiene, oral care, and grooming segments, said Kamath. He expects the volume within the FMCG category to grow in "mid-single digits" over 5-7 years. P&G Hygiene is also working on increasing rural penetration, which for its sanitary products remains below 35%.

Within the personal grooming portfolio, he said, appliances like electric razors currently comprise less than 2% of the overall category in value.

"While the consumer habit is evolving, the shift to electric razors is still small," he said. "Based on the shoppers' habits and preferred platforms, we are making the entire Braun series available on all the e-commerce platforms."