Colgate-Palmolive (India) Ltd continues to dominate the oral care industry with a strong 46%+ market share. Despite stiff competition from players like Hindustan Unilever and Dabur, Colgate has been able to protect its market leadership and maintain a strong double-digit volume growth momentum. Colgate has introduced low price-point products of its brands for driving volume growth. The discount brand Cibaca has helped in driving penetration and consumption growth in rural areas. Colgate, currently, derives more than 35% of its revenues from the rural markets. This contribution is set to increase further with rising oral hygiene awareness. Low penetration levels across segments are expected to fuel further growth.
With the strong volume growth momentum, market share gains and healthy margin expansion, we expect Colgate to witness a 19.4% CAGR in net profit over FY09-12. We maintain BUY with a target price of Rs794.
Strong volume momentum to continue
With the rapidly growing rural consumption (increasing penetration) and consumer uptrading (toothpowder to toothpaste), the ~Rs45bn Indian Oral care market is poised to sustain a healthy double-digit growth momentum. Shift in demand from toothpowder to toothpaste and increasing rural penetration of oral care products are the two key growth drivers for the industry. Colgate, being the market leader, is expected to be the major beneficiary.
Despite the economic slowdown, Colgate recorded strong ~14% volume growth during 9M FY10 in the toothpaste segment (FY09 - 13%), driven by enhanced rural distribution (with its brand Cibaca) and introduction of low unit priced packs (which has helped in widening the customer base). We expect the company to witness revenue CAGR of 15.6% over FY09-12 driven by double-digit volume growth (in low-teens) and price / mix gains.
Valuation summary
Y/e 31 Mar (Rs m)
|
FY09
|
FY10E
|
FY11E
|
FY12E
|
Revenues
|
16,948
|
19,966
|
22,826
|
26,157
|
yoy growth (%)
|
15.0
|
17.8
|
14.3
|
14.6
|
Operating profit
|
2,665
|
4,117
|
4,513
|
5,244
|
OPM (%)
|
15.7
|
20.6
|
19.8
|
20.1
|
Pre-exceptional PAT
|
2,951
|
4,191
|
4,401
|
5,028
|
Reported PAT
|
2,902
|
4,191
|
4,401
|
5,028
|
yoy growth (%)
|
25.3
|
44.4
|
5.0
|
14.3
|
|
|
|
|
|
EPS (Rs)
|
21.7
|
30.8
|
32.4
|
37.0
|
P/E (x)
|
32.0
|
22.5
|
21.5
|
18.8
|
Price/Book (x)
|
43.7
|
32.5
|
25.6
|
20.6
|
EV/EBITDA (x)
|
34.5
|
22.2
|
20.1
|
17.2
|
Debt/Equity (x)
|
0.0
|
0.0
|
0.0
|
0.0
|
RoE (%)
|
155.9
|
165.5
|
133.4
|
121.3
|
RoCE (%)
|
181.1
|
190.2
|
162.3
|
150.3
|
Source: Company, India Infoline Research