- Colgate recorded 17.7% yoy growth in revenues at Rs7.7bn during Q2 FY13 – in line with our expecations. Volume growth remained strong at 10% led by toothpaste brands like Colgate Dental Cream, Active Salt, Colgate Sensitive and Colgate Total. Core toothpaste segment witnessed healthy 11% yoy volume growth led by the flagship brands. Toothbrush segment recorded ~16% yoy increase in volumes.
- Colgate has witnessed significant market share gains of 200bps yoy in toothpaste category during Jan-Sept’12. Colgate has maintained leadership position by registering volume market share of 54.3% during Jan-Sept’12 (52.3% during Jan-Sept’11) in the toothpaste category. Colgate launched a new toothpaste variant – Colgate Total advance whitening and Max Fresh Ice toothpaste during the quarter. Market share in the toothbrush and mouthwash categories increased to 39%/26.8% respectively during Jan-Sept’12.
- Operating margins for the quarter witnessed a sharp 330bps expansion at 20.3% led by 330bps drop in overhead cost (due to lower promotional spends). We expect Colgate to incur higher promotional spends in Q3 FY13 due to expenses related to the Oral Health Month. Staff cost declined by 220bps due to VRS impact in Q2 FY12. Adjusting for the same, staff costs increased by 4% yoy. Margin expansion could have been higher but for 50bps increase in advertising cost. We expect the adspend to sales ratio to remain at ~10-11% of net sales for the next 2-3 years.
|As a % of net sales||Q2 FY13||Q2 FY12||bps yoy||Q1 FY13||bps qoq|
|Purchase of FG||7.3||8.4||(107)||7.8||(46)|
Effective tax rate for the quarter was lower at 19.4% against 22.7% in Q2 FY12 due to a prior period tax write-back. The earnings growth was above our estimates (of Rs1.1bn) at Rs1.5bn fuelled by healthy topline growth and improved operating efficiency.
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 CY13.
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 and GSK Consumer) 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 17.2% CAGR in revenues and 16.4% CAGR in net profit over FY12-14. At the current market price of Rs1,284, the stock is trading at 28.9x FY14E EPS of Rs44.5. Maintain Market Performer rating with a 9-mth price target of Rs1,334.
|(Rs m)||Q2 FY13||Q2 FY12||% yoy||Q1 FY13||% qoq|
|Purchase of goods||(567)||(552)||2.7||(573)||(1.1)|
|OPM (%)||20.3||17.1||326 bps||19.4||96 bps|
|Effective tax rate (%)||19.4||22.7||-||28.0||-|
|PAT margin (%)||18.7||15.2||358 bps||16.0||280 bps|
|Ann. EPS (Rs)||42.7||29.3||
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