Colgate-Palmolive (India) (Q1 FY13)

India Infoline News Service | Mumbai |

Colgate has witnessed significant market share gains of 210bps and 190bps yoy in toothpaste and toothbrush categories respectively during Jan-Jun’12.

CMP Rs1,161, Target price Rs1,163, Upside 0.3%

  • Colgate recorded 20.5% yoy growth in revenues at Rs7.4bn during Q1 FY13 – ahead of our expecations of Rs7.1bn. Volume growth remained strong at 11% led by toothpaste brands like Colgate Dental Cream, Active Salt, Colgate Sensitive and Colgate Total. Core toothpaste segment witnessed healthy ~12% yoy volume growth led by the flagship brands. Toothbrush segment recorded ~15% yoy increase in volumes. Toothpowder volumes though declined by 5% yoy during the period. The earnings growth was in line with our estimates at Rs1.2bn fuelled by healthy topline growth.
  • Colgate has witnessed significant market share gains of 210bps and 190bps yoy in toothpaste and toothbrush categories respectively during Jan-Jun’12. It has maintained leadership position by registering volume market share of 54.5% during Jan-Jun’12 (52.4% during Jan-Jun’11) in the toothpaste category. Market share in the toothbrush category increased to 38.2% as against 36.3% in Jan-Jun’11.
  • Operating margins for the quarter expanded marginally by 20bps to 19.4% aided by 190bps decline in overhead cost. The expansion could have been even better but for 100bps increase in advertising cost. Colgate’s adspends tend to vary depending on the new launches and spends related to ‘Oral Health Month’. Colgate continues to focus on establishing new premium products like Colgate Sensitive and Colgate Total, which will require higher adspends. We expect the adspend to sales ratio to remain at ~10-11% of net sales for the next 2-3 years.
Cost analysis
As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Material cost 32.9 34.2 (130) 32.7 25
Purchase of FG 7.8 6.1 165 7.4 41
Personnel cost 8.5 8.2 33 7.6 92
Advertising cost 11.4 10.4 100 8.5 287
Other overheads 20.1 22.0 (190) 21.6 (152)
Total costs 80.6 80.9 (22) 77.7 294
Source: Company, India Infoline Research  
  • Expansion plans - Apart from setting up a new toothbrush facility in Sanand, Gujarat, Colgate has acquired a plot of land in Andhra Pradesh (in April 2012) on a long term lease for setting up another toothbrush manufacturing facility which is expected to be operational in CY2013.
  • Colgate continues to dominate the oral care industry despite stiff competition from players like HUL and Dabur. We expect the competitive activity to intensify further (new launches from GSK Consumer and likely entry of P&G) resulting in higher adspend for gaining/protecting market share. Higher adspend and tax outgo (income tax benefit for Colgate’s manufacturing plant in Baddi has reduced from 100% to 30%) are likely to put pressure on profitability. We expect Colgate to witness 16.5% CAGR in revenues and 10.9% CAGR in net profit over FY12-14. At the current market price of Rs1,161, the stock is trading at 28.7x FY14E EPS of Rs40.4. Maintain Market Performer rating with a 9-mth price target of Rs1,163.
Results table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 7,361 6,111 20.5 6,859 7.3
Material cost (2,424) (2,092) 15.9 (2,242) 8.1
Purchase of goods (573) (375) 52.8 (506) 13.3
Personnel cost (624) (498) 25.3 (518) 20.4
Advertising cost (837) (634) 32.0 (583) 43.6
Other overheads (1,478) (1,343) 10.0 (1,481) (0.2)
Operating profit 1,424 1,169 21.9 1,529 (6.8)
OPM (%) 19.4 19.1 22 bps 22.3 (294) bps
Depreciation (105) (88) 19.4 (100) 4.9
Interest - (4) - (2) -
Other income 312 305 2.5 301 3.8
PBT 1,632 1,381 18.1 1,728 (5.6)
Tax (457) (377) 21.4 (420) 8.9
Effective tax rate (%) 28.0 27.3 - 24.3 -
Reported PAT 1,174 1,004 16.9 1,308 (10.2)
PAT margin (%) 16.0 16.4 (48) bps 19.1 (311) bps
Ann. EPS (Rs) 34.5 29.5 16.9 38.5 (10.2)
Source: Company, India Infoline Research
 
Financial Summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Revenues 22,206 26,239 30,997 35,619
yoy growth (%) 13.2 18.2 18.1 14.9
Operating profit 4,490 5,092 6,091 7,070
OPM (%) 20.2 19.4 19.7 19.9
Pre-exceptional PAT 4,026 4,465 4,703 5,496
Reported PAT 4,026
BSE 1,051.75 [17.25] ([1.61]%)
NSE 1,050.70 [16.35] ([1.53]%)

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