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Revenues in line with expectations; gains market share
Colgate-Palmolive India’s (Colgate) Q3FY11 revenues increased 12.9% Y-o-Y, to
INR 5.76 bn (in line with our expectation of INR 5.54 bn). PAT dropped ~43% Yo-
Y, to INR 662 mn following higher than expected Advertising and sales
promotion (A&P) costs and tax rate. Toothpaste market share (volume)
increased 110bps Y-o-Y, to 53.4% and that for toothbrush jumped 120bps to
40.9%; for toothpowder, it was flat to 47.3% for January-November 2010. In
the emerging mouthwash category, Plax mouthwash has increased its volume
market share from 6.6% to 17.3% (January-November 2010). The company
posted volume growth of 12% Y-o-Y, led by steady 13% growth in the
toothpaste category. Toothbrush volumes grew 24% Y-o-Y.
Gross margins expanded in high commodity inflation environment
Colgate’s gross margins expanded 364bps Y-o-Y despite high commodity
inflation. Company’s EBITDA declined 23.2% Y-o-Y, to INR 931 mn. EBITDA
margins declined 758bps Y-o-Y, to 16.1%, largely driven by 618bps increase in
A&P costs. Staff cost increased by 113bps and other expenses by 391bps Y-o-Y.
A&P spend ballooned, significant investment in brand equity
Colgate’s ad spend in the quarter ballooned 60% Y-o-Y to INR 1.20 bn. This is in
light of the main competitor, HUL, spending heavily on ads and likely entry of
P&G in the tooth paste market.
Tax rates ballooned, as expected
The manufacturing plant at Baddi, which meets ~50% of Colgate’s needs,
enjoyed 100% tax exemption for five years. The tax holiday ended in April 2010,
hence, tax rates increased to 27.4% in Q3FY11, up from 22.1% in Q2FY11. We
are assuming 22.5% tax rate for FY11 and beyond.
Outlook and valuations: Robust; maintain ‘HOLD’
Colgate’s brand equity and distribution remain huge advantages. Tax rates are
expected to increase ~100–200bps, going ahead and P&G is likely to enter the
oral care market, which will put additional pressure on Colgate. Also, HUL has
upped the ante in terms of ad spends and commodity inflation has hit all FMCG
players. Despite this, Colgate has managed to maintain revenue growth and
gross margin expansion. We maintain ‘HOLD’ recommendation on the stock. On
relative basis the stock is rated ‘Sector Underperformer’.
India Equity Research Reports, IPO and Stock News
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Revenues in line with expectations; gains market share
Colgate-Palmolive India’s (Colgate) Q3FY11 revenues increased 12.9% Y-o-Y, to
INR 5.76 bn (in line with our expectation of INR 5.54 bn). PAT dropped ~43% Yo-
Y, to INR 662 mn following higher than expected Advertising and sales
promotion (A&P) costs and tax rate. Toothpaste market share (volume)
increased 110bps Y-o-Y, to 53.4% and that for toothbrush jumped 120bps to
40.9%; for toothpowder, it was flat to 47.3% for January-November 2010. In
the emerging mouthwash category, Plax mouthwash has increased its volume
market share from 6.6% to 17.3% (January-November 2010). The company
posted volume growth of 12% Y-o-Y, led by steady 13% growth in the
toothpaste category. Toothbrush volumes grew 24% Y-o-Y.
Gross margins expanded in high commodity inflation environment
Colgate’s gross margins expanded 364bps Y-o-Y despite high commodity
inflation. Company’s EBITDA declined 23.2% Y-o-Y, to INR 931 mn. EBITDA
margins declined 758bps Y-o-Y, to 16.1%, largely driven by 618bps increase in
A&P costs. Staff cost increased by 113bps and other expenses by 391bps Y-o-Y.
A&P spend ballooned, significant investment in brand equity
Colgate’s ad spend in the quarter ballooned 60% Y-o-Y to INR 1.20 bn. This is in
light of the main competitor, HUL, spending heavily on ads and likely entry of
P&G in the tooth paste market.
Tax rates ballooned, as expected
The manufacturing plant at Baddi, which meets ~50% of Colgate’s needs,
enjoyed 100% tax exemption for five years. The tax holiday ended in April 2010,
hence, tax rates increased to 27.4% in Q3FY11, up from 22.1% in Q2FY11. We
are assuming 22.5% tax rate for FY11 and beyond.
Outlook and valuations: Robust; maintain ‘HOLD’
Colgate’s brand equity and distribution remain huge advantages. Tax rates are
expected to increase ~100–200bps, going ahead and P&G is likely to enter the
oral care market, which will put additional pressure on Colgate. Also, HUL has
upped the ante in terms of ad spends and commodity inflation has hit all FMCG
players. Despite this, Colgate has managed to maintain revenue growth and
gross margin expansion. We maintain ‘HOLD’ recommendation on the stock. On
relative basis the stock is rated ‘Sector Underperformer’.
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