Colgate-Palmolive (India) (Q2 FY14)

India Infoline News Service | Mumbai |

Colgate has witnessed significant volume market share gains of 140bps yoy at 56% in toothpaste category during Jan-Sep13.

CMP Rs1,238, Target Rs1,304, Upside 5.3%

  • Colgate recorded 15.8% yoy growth in revenues at Rs9bn during Q2 FY14 – in line with our expectations. Colgate reported a healthy 10% yoy volume growth led by toothpaste brands like Colgate Dental Cream, Active Salt, Max Fresh, Colgate Total and recently launched Colgate Visible White. Core toothpaste segment witnessed healthy 9% yoy volume growth led by the flagship brands.

  • Colgate has witnessed significant volume market share gains of 140bps yoy at 56% in toothpaste category during Jan-Sep13. Market share in the toothbrush segment increased sharply by 210bps yoy to 41.4% during Jan-Sep’13.

  • Operating margins for the quarter contracted by 450bps to 15.8% due to sharp 500bps/520bps increase in outsourcing/overhead (on a low base) cost respectively. 180bps increase in advertising cost (higher competitive activity) further put pressure on margins. We believe with the 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
Q2 FY14
Q2 FY13
bps yoy
Q1 FY14
bps qoq
Material cost
28.1
34.5
(645)
28.3
(24)
Purchase of FG
12.3
7.3
503
10.5
180
Personnel cost
6.0
7.0
(105)
7.3
(137)
Advertising cost
13.3
11.5
185
12.0
133
Other overheads
24.5
19.3
516
24.0
48
Total costs
84.2
79.7
453
82.2
201
Source: Company, India Infoline Research
  • Effective tax rate for the quarter increased by 640bps to 25.8% against 19.4% in Q2 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. Impacted by higher tax outgo and lower other income net profit for the quarter declined by 24.5% yoy to Rs1.1bn – below our expectations of Rs1.4bn.

  • 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 ~15% CAGR in revenues and 9% CAGR in net profit respectively over FY13-15. At the current market price of Rs1,238, the stock is trading at 28.5x FY15E EPS of Rs43.5. Maintain Market Performer rating with a revised 9-mth price target of Rs1,304 (earlier Rs1,438).

Results table
(Rs m)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Net sales
8,957
7,738
15.8
8,446
6.0
Material cost
(2,515)
(2,672)
(5.9)
(2,392)
5.2
Purchase of goods
(1,106)
(567)
95.2
(891)
24.1
Personnel cost
(535)
(543)
(1.5)
(620)
(13.8)
Advertising cost
(1,195)
(889)
34.4
(1,014)
17.8
Other overheads
(2,194)
(1,496)
46.6
(2,028)
8.2
Operating profit
1,413
1,571
(10.1)
1,502
(5.9)
OPM (%)
15.8
20.3
(453) bps
BSE 1,061.00 10.50 (1%)
NSE 1,057.75 7.05 (0.67%)

***Note: This is a NSE Chart

 

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