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.
|As a % of net sales||Q4 FY13||Q4 FY12||bps yoy||Q3 FY13||bps qoq|
|Purchase of FG||7.8||7.4||45||7.7||8|
- 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).
|(Rs m)||Q4 FY13||Q4 FY12||% yoy||Q3 FY13||% qoq|
|Purchase of goods||(635)||(506)||25.5||(590)||7.6|
|OPM (%)||18.3||22.3||(397) bps||16.9||143 bps|
|Effective tax rate (%)||27.3||24.3||-||26.1||-|
|PAT margin (%)||15.2||19.1||(388) bps||14.6||62 bps|
|Ann. EPS (Rs)||36.2||
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