Colgate-Palmolive (India) (Q1 FY15)

India Infoline News Service | Mumbai |

Matching our expectations, Colgate recorded 12.6% yoy revenue growth at Rs9.5bn during Q1 FY15.

CMP Rs1,632, Target Rs1,567, Downside 3.9% 
  • Colgate recorded ~13% yoy revenue growth at Rs9.5bn in line with our expectations during Q1 FY15 led by a slower 5% yoy volume growth

  • Operating margins expanded by 80bps to 20.4% led by 130bps drop in raw material and 120bps decline in staff cost partially due to the sale of GSSO business

  • Net profit for the quarter increased by 17.7% yoy to Rs1.3bn. APAT decreased by 27.2% yoy as the company had received Rs706mn from sale of GSSO business during Q1 FY14

  • We expect Colgate to witness a ~16% revenue/PAT CAGR over FY14-16. Recommend Reduce

Result table
(Rs m) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Net sales 9,506 8,446 12.6 9,206 3.3
Operating income 63 151 (58.5) 67 (6.4)
Total income 9,569 8,597 11.3 9,273 3.2
Material cost (2,871) (2,392) 20.0 (3,563) (19.4)
Purchase of goods (701) (891) (21.3) (96) 634.5
Personnel cost (584) (620) (5.8) (434) 34.6
Advertising cost (1,806) (1,558) 15.9 (1,659) 8.9
Other overheads (1,671) (1,484) 12.6 (1,503) 11.2
Operating profit 1,937 1,653 17.2 2,019 (4.1)
OPM (%) 20.4 19.6 80 bps 21.9 (156) bps
Depreciation (166) (117) 41.0 (153) 8.2
Interest - - - - -
Other income 65 171 (62.3) 39 63.7
PBT 1,836 1,707 7.6 1,905 (3.6)
Tax (487) (561) (13.2) (521) (6.6)
Effective tax rate (%) 26.5 32.9 - 27.3 -
Adjusted PAT 1,349 1,146 17.7 1,385 (2.6)
Adj. PAT margin (%) 14.2 13.6 63 bps 15.0 (85) bps
Extra ordinary items - 706 - (62) -
Reported PAT 1,349 1,852 (27.2) 1,323 2.0
Ann. EPS (Rs) 39.7 33.7 17.7 40.7 (2.6)
Source: Company, India Infoline Research

Revenue growth in line with expectations

Matching our expectations, Colgate recorded 12.6% yoy revenue growth at Rs9.5bn during Q1 FY15. Other operating revenues declined by ~58% yoy to Rs63mn as the company sold out Global Shared Services arm to its parent. Volume growth at mere 5% yoy was lowest in past several years due to slowdown in toothpaste category. With increasing toothpaste penetration the volume growth is likely to slow down to single digit compared to usual trend of double digit growth over the next 2-3 years.

Colgate’s premiumisation of product portfolio is on track with products like Visible White, Colgate Cavity Fighter and Colgate Slim Soft. Colgate has witnessed significant volume market share gains of 110bps yoy at 57% in toothpaste category during Jan-Jun’14. While toothbrush segment market share increased by 120bps yoy to 42.6% during the same period.


Strong market share gains across portfolio (%)
Operational Metrics Q1 FY15 Q1 FY14 bps
Volume growth 5.0 9.0 (400)
Implied price growth 7.2 5.3 190
Toothpaste volume growth 4.0 11.0 (700)
Toothpaste volume market share* 57.0 55.9 110
Toothbrush volume market share* 42.6 41.4 120
Source: Company, India Infoline Research * Market share for Jan-Jun'14 Vs Jan-Jun'13

Sharp decline in raw material and staff cost fuels operating margins

Operating margins for the quarter expanded by 80bps to 20.4% aided by a sharp 130bps/120bps decrease in raw material/staff cost. A ~50bps increase in advertising cost (higher competitive activity) restricted further margin expansion. The Oral B brand has not been able to make a strong mark in the Indian oral care market. However, we believe P&G will keep trying hard to gain market share due to which adspends will remain elevated.


Cost analysis
As a % of net sales Q1 FY15 Q1 FY14 bps yoy Q4 FY14 bps qoq
Material cost 37.6 38.9 (129) 39.7 (217)
Personnel cost 6.1 7.3 (120) 4.7 143
Advertising cost 19.0 18.4 55 18.0 98
Other overheads 17.6 17.6 1 16.3 125
Source: Company, India Infoline Research

Net profit matches expectations

Net profit for the quarter matched our expectations by recording 17.7% yoy growth at Rs1.3bn. The growth could have been even better but for lower other income which declined by 62% yoy to Rs65mn. The management expects tax rate to be at 30%/33% in FY15/FY16 respectively.

Toothpaste volume growth slows down … recommend Reduce

With its robust brand equity, innovative launches and products across price-points, Colgate continues to dominate the industry. The entry of P&G has not affected Colgate in a significant manner so far. However, the slowdown in toothpaste segment seems to have hit oral care category given the company reporting weakest volume growth. We expect with increasing toothpaste penetration the volume growth could slow down to single digit compared to usual trend of double digit growth over the next 2-3 years. We expect Colgate to witness a ~16% revenue/PAT CAGR over FY14-16. At the current market price of Rs1,632, the stock is trading at 34.5x FY16E EPS of Rs47.3. Recommend Reduce rating with a 9-mth price target of Rs1,567.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 30,841 35,449 41,254 47,511
yoy growth (%) 17.5 14.9 16.4 15.2
Operating profit 6,568 6,640 8,078 9,706
OPM (%) 21.3 18.7 19.6 20.4
Pre-exceptional PAT 4,968 4,755 5,525 6,434
Reported PAT 4,968 5,461 5,525 6,434
yoy growth (%) 11.3 9.9 1.2 16.5
EPS (Rs) 36.5 35.0 40.6 47.3
P/E (x) 44.7 46.7 40.2 34.5
Price/Book (x) 45.3 37.0 30.7 25.0
EV/EBITDA (x) 33.1 33.0 27.0 22.4
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 107.4 87.3 83.5 79.8
RoCE (%) 143.4 121.8 120.2 119.2
Source: Company, India Infoline Research



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