Colgate-Palmolive (India) (Q4 FY13)

India Infoline News Service | Mumbai |

Colgate continues to dominate the oral care industry despite stiff competition from players like HUL and Dabur.

CMP Rs1,480, Target Rs1,523, Upside 2.9%

  • Colgate recorded 18.3% yoy growth in revenues at Rs8.1bn during Q4 FY13 – in line with our expecations. Volume growth remained strong at 12% yoy 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 130bps yoy at 55.4% in toothpaste category during Jan-Apr’13. Colgate launched new toothpastes – Colgate Visible White Toothpaste, Colgate Total Pro Gum Health, Colgate Sensitive Pro-Relief™ Multi-Protection, Colgate Max Fresh Ice toothpaste and Colgate Total Advance Whitening during the quarter. Market share in the toothbrush and mouthwash categories increased to 41.5%/26.5% respectively during Jan-Apr’13.

  • Operating margins for the quarter contracted by 400bps to 18.3% (on a high base) due to sharp 170bps/160bps and 100bps increase in overhead (higher power & fuel cost) /advertising (higher competitive activity) and staff (due to retention bonus) cost respectively. We expect with the Oral B launch imminent and intensifying competition in the oral care sector, Colgate will have to increase its adspends.

Cost analysis
As a % of net sales Q4 FY13 Q4 FY12 bps yoy Q3 FY13 bps qoq
Material cost 31.9 32.7 (81) 32.2 (30)
Purchase of FG 7.8 7.4 45 7.7 8
Personnel cost 8.6 7.6 102 8.3 30
Advertising cost 10.1 8.5 161 13.1 (298)
Other overheads 23.3 21.6 169 21.8 146
Total costs 81.7 77.7 397 83.1 (143)
Source: Company, India Infoline Research

  • Effective tax rate for the quarter was higher at 27.3% against 24.3% in Q4 FY12. The company expects tax rate to increase by ~150bps per year, as a larger proportion of its production comes from non-tax exempt zone. Net profit for the quarter declined by 5.8% yoy to Rs1.2bn - below our estimates of Rs1.3bn due to sharp increase in advertising cost and higher tax outgo.
  • 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, 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 Rs1,480, the stock is trading at 30.1x FY15E EPS of Rs49.1. Maintain Market Performer rating with a revised 9-mth price target of Rs1,523 (earlier Rs1,423).
Results table
(Rs m) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 8,116 6,859 18.3 7,627 6.4
Material cost (2,587) (2,242) 15.4 (2,454) 5.4
Purchase of goods (635) (506) 25.5 (590) 7.6
Personnel cost (696) (518) 34.3 (631) 10.3
Advertising cost (821) (583) 40.8 (999) (17.8)
Other overheads (1,890) (1,481) 27.6 (1,664) 13.5
Operating profit 1,487 1,529 (2.7) 1,288 15.4
OPM (%) 18.3 22.3 (397) bps 16.9 143 bps
Depreciation (113) (100) 12.5 (113) (0.4)
Interest - (2) - - -
Other income 320 301 6.4 328 (2.4)
PBT 1,695 1,728 (1.9) 1,504 12.7
Tax (463) (420) 10.1 (393) 17.7
Effective tax rate (%) 27.3 24.3 - 26.1 -
Reported PAT 1,232 1,308 (5.8) 1,111 10.9
PAT margin (%) 15.2 19.1 (388) bps 14.6 62 bps
Ann. EPS (Rs) 36.2
BSE 1,079.65 8.75 (0.82%)
NSE 1,080.05 7.65 (0.71%)

***Note: This is a NSE Chart

 

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