Colgate-Palmolive (India) (Q4 FY14)

India Infoline News Service | Mumbai |

Colgate has witnessed significant volume market share gains of 170bps yoy at 57.1% in toothpaste category during Jan-Apr’14.

CMP Rs1,374, Target Rs1,510, Upside 9.9% 
  • 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

Result table
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 9,206 8,116 13.4 8,840 4.1
Operating income 67 200 (66.5) 71 (6.2)
Total income 9,273 8,315 11.5 8,911 4.1
Material cost (3,563) (2,587) 37.7 (2,556) 39.4
Purchase of goods (96) (635) (85.0) (901) (89.4)
Personnel cost (434) (696) (37.7) (530) (18.1)
Advertising cost (995) (821) 21.1 (1,215) (18.1)
Other overheads (2,167) (1,890) 14.7 (2,204) (1.7)
Operating profit 2,019 1,687 19.7 1,505 34.1
OPM (%) 21.9 20.8 115 bps 17.0 490 bps
Depreciation (153) (113) 35.8 (121) 27.0
Interest - - - - -
Other income 39 121 (67.4) 162 (75.7)
PBT 1,905 1,695 12.4 1,547 23.1
Tax (521) (463) 12.5 (418) 24.6
Effective tax rate (%) 27.3 27.3 - 27.0 -
PAT 1,385 1,232 12.4 1,129 22.6
PAT margin (%) 15.0 15.2 (14) bps 12.8 226 bps
Extra ordinary items (62) - - (1) -
Reported PAT 1,323 1,232 7.4 1,128 17.3
Adjusted PAT 1,367 1,232 11.0 1,128 21.2
Ann. EPS (Rs) 40.7 36.2 12.4 33.2 22.6
Source: Company, India Infoline Research

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
Source: Company, India Infoline Research * Market share for Jan-Apr'14 Vs Jan-Apr'13

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.


Cost analysis
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material cost 39.7 39.7 5 39.1 63
Personnel cost 4.7 8.6 (386) 6.0 (128)
Advertising cost 10.8 10.1 69 13.7 (294)
Other overheads 23.5 23.3 25 24.9 (140)
Source: Company, India Infoline Research

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.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Revenues 30,841 35,449 40,863 47,279
yoy growth (%) 17.5 14.9 15.3 15.7
Operating profit 6,568 6,640 7,925 9,555
OPM (%) 21.3 18.7 19.4 20.2
Pre-exceptional PAT 4,967 4,755 5,479 6,494
Reported PAT 4,967 5,461 5,479 6,494
yoy growth (%) 11.3 9.9 0.3 18.5
EPS (Rs) 36.5 35.0 40.3 47.8
P/E (x) 37.6 39.3 34.1 28.8
Price/Book (x) 38.2 31.1 26.5 21.2
EV/EBITDA (x) 27.8 27.7 23.1 19.0
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 107.4 87.3 84.0 81.9
RoCE (%) 143.4 121.8 118.3 117.0
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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