Colgate recorded 13.4% yoy revenue growth at Rs9.2bn marginally below our expectations of Rs9.4bn during Q3 FY14 led by a slower 7% yoy toothpaste volume growth
Operating margins expanded by 110bps to 21.9% led by sharp 390bps drop staff cost partially due to the sale of GSSO business
Net profit for the quarter increased by 12.4% yoy to Rs1.4bn. APAT after extraordinary items of Rs62mn increased by 7.4% yoy. The growth could have been even better but for lower other income
We expect Colgate to witness a ~15%/17% revenue/PAT CAGR over FY14-16, driven by double-digit volume growth (in low-teens) and price/mix gains. Maintain Market Performer
|(Rs m)||Q4 FY14||Q4 FY13||% yoy||Q3 FY14||% qoq|
|Purchase of goods||(96)||(635)||(85.0)||(901)||(89.4)|
|OPM (%)||21.9||20.8||115 bps||17.0||490 bps|
|Effective tax rate (%)||27.3||27.3||-||27.0||-|
|PAT margin (%)||15.0||15.2||(14) bps||12.8||226 bps|
|Extra ordinary items||(62)||-||-||(1)||-|
|Ann. EPS (Rs)||40.7||36.2||12.4||33.2||22.6|
Revenue growth almost in line with expectations
Colgate recorded 13.4% yoy revenue growth at Rs9.2bn during Q4 FY14, marginally below our expectations of Rs9.4bn. Colgate reported a slower 7% yoy toothpaste volume growth (9% for FY14) led by the flagship brands. Other operating revenues declined by ~67% yoy to Rs67mn as the company sold out Global Shared Services arm to its parent.
Colgate has witnessed significant volume market share gains of 170bps yoy at 57.1% in toothpaste category during Jan-Apr’14. Market share in the toothbrush segment increased sharply by 100bps yoy to 42.3% during Jan-Apr’14.
Strong market share gains across portfolio (%)
|Operational Metrics||Q3 FY14||Q3 FY13||% yoy||FY14|
|Toothpaste volume growth (% yoy)||7.0||NA||-||9.0|
|Toothpaste Market share*||57.1||55.4||170 bps|
|Toothbrush Market share*||42.3||41.3||100 bps|
Sharp decline in staff cost fuels operating margins
Operating margins for the quarter expanded by 110bps to 21.9% aided by a sharp 390bps decrease in staff cost. A 70bps 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 compared to FY13 levels.
|As a % of net sales||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
Net profit matches expectations
Net profit for the quarter matched our expectations by recording 12.4% yoy growth at Rs1.4bn. The growth could have been even better but for lower other income which declined by 67% yoy to Rs39mn due to lower interest rate and lower cash as funds were deployed for construction of manufacturing facilities. The management expects tax rate to be at 30%/33% in FY15/FY16 respectively.
Dominant position in the oral care industry… Maintain Market Performer
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. We expect Colgate to increase its focus on the personal care (Palmolive) and household care (Axion) segments which will further drive growth. The mouthwash category (Colgate Plax) which is nascent is also expected to develop over the longer term and add to profits. We expect Colgate to witness a ~15%/17% revenue/PAT CAGR over FY14-16, driven by double-digit volume growth (in low-teens) and price/mix gains. At the current market price of Rs1,374, the stock is trading at 28.8x FY16E EPS of Rs47.8. Maintain Market Performer with a 9-mth price target of Rs1,510.
|Y/e 31 Mar (Rs m)||FY13||FY14E||FY15E||FY16E|
|yoy growth (%)||17.5||14.9||15.3||15.7|
|yoy growth (%)||11.3||9.9||0.3||18.5|