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Colgate-Palmolive (India) (Q1 FY14)

Colgate recorded 14.7% yoy growth in revenues at Rs8.4bn during Q1 FY14 – marginally below our expectations of Rs8.6bn.

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs1,349, Target Rs1,438, Upside 6.6%
  • Colgate recorded 14.7% yoy growth in revenues at Rs8.4bn during Q1 FY14 – marginally below our expectations of Rs8.6bn. Colgate reported a healthy 9% yoy volume growth led by toothpaste brands like Colgate Dental Cream, Active Salt, Colgate Max Fresh and Colgate Total. Core toothpaste segment witnessed healthy 11% yoy volume growth led by the flagship brands. According to company management, premiumisation trend has been witnessed – for e.g. the freshness category sales increased by 18% yoy for FY13 (premiumisation adds ~2-3% to Colgate’ sales each year).
  • Colgate has witnessed significant volume market share gains of 120bps yoy at 55.9% in toothpaste category during Jan-Jun13. Market share in the toothbrush segment increased sharply by 270bps to 41.5% during Jan-Jun’13.

  • Operating margins for the quarter contracted by 160bps to 17.8% due to sharp 390bps/60bps increase in overhead (higher power & fuel cost) /advertising (higher competitive activity) cost respectively. We believe with the recent Oral B launch and increasing competition in the oral care sector, requirement of higher adspends will keep Colgate’s operating margins under check.
Cost analysis
As a % of net sales
 Q1 FY14
 Q1 FY13
 bps yoy
 Q4 FY13
 bps qoq
Material cost
 28.3
 32.9
 (462)
 31.9
 (356)
Purchase of FG
 10.5
 7.8
 276
 7.8
 273
Personnel cost
 7.3
 8.5
 (114)
 8.6
 (124)
Advertising cost
 12.0
 11.4
 63
 10.1
 189
Other overheads
 24.0
 20.1
 393
 23.3
 72
Total costs
 82.2
 80.6
 157
 81.7
 54
Source: Company, India Infoline Research
  • Effective tax rate for the quarter was higher at 32.9% against 28% in Q1 FY13. The company expects tax rate to increase by ~150bps per year, as a larger proportion of its production comes from non-tax exempt zone. The company recorded an exceptional Rs555mn (net of tax) gain from slump sale of Global Shared Services Organisation to Colgate-Palmolive Company, USA. Adjusted net profit for the quarter increased by 11.5% yoy to Rs1.3bn - above our estimates.

  • 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 (HUL, P&G and GSK Consumer) resulting in higher adspend for gaining/protecting market share. Higher adspend and tax outgo (higher production from non-tax free zone) are likely to put pressure on profitability. We expect Colgate to witness ~16% CAGR in revenues and net profit respectively over FY13-15. At the current market price of Rs1,349, the stock is trading at 27.2x FY15E EPS of Rs49.6. Maintain Market Performer rating with a revised 9-mth price target of Rs1,438 (earlier Rs1,523).

Results table

(Rs m)
 Q1 FY14
 Q1 FY13
 % yoy
 Q4 FY13
 % qoq
Net sales
 8,446
 7,361
 14.7
 8,116
 4.1
Material cost
 (2,392)
 (2,424)
 (1.3)
 (2,587)
 (7.6)
Purchase of goods
 (891)
 (573)
 55.5
 (635)
 40.3
Personnel cost
 (620)
 (624)
 (0.7)
 (696)
 (10.9)
Advertising cost
 (1,014)
 (837)
 21.1
 (821)
 23.5
Other overheads
 (2,028)
 (1,478)
 37.2
 (1,890)
 7.3
Operating profit
 1,502
 1,424
 5.5
 1,487
 1.0
OPM (%)
 17.8
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