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Colgate-Palmolive India
n Revenues in line with expectations; gains market share
Colgate -Palmolive India’s (Colgate) Q3FY11 revenues jumped 13.8% Y-o-Y, to INR 5.58
bn (in line with our expectation of INR 5.54 bn). PAT dropped ~43% Y-o-Y, to INR 662
mn following higher than expected Advertising and sales prom otion (A&P) costs.
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.
n EBITDA margins slipped following higher A&P costs
Company’s EBITDA declined 26.0% Y-o-Y, to INR 746 mn. EBITDA margins declined
719bps Y-o-Y, to 13.4%, largely driven by 626bps increase in A&P costs. Staff cost
increased by 110bps and other expenses by 393bps. This was, however, slightly offset
by lower COGS costs of 411bps.
n 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.
n 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.
n Outlook and valuations: Robust; maintain ‘HOLD’
Colgate’s brand equity and distribution remain huge advantages. The company has
managed to maintain revenue growth and gross margin expansion even in this high
inflation environment. 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. We maintain ‘HOLD’
recommendation on the stock. On relative basis the stock is rated ‘Sector
Underperformer’.
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Colgate-Palmolive India
n Revenues in line with expectations; gains market share
Colgate -Palmolive India’s (Colgate) Q3FY11 revenues jumped 13.8% Y-o-Y, to INR 5.58
bn (in line with our expectation of INR 5.54 bn). PAT dropped ~43% Y-o-Y, to INR 662
mn following higher than expected Advertising and sales prom otion (A&P) costs.
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.
n EBITDA margins slipped following higher A&P costs
Company’s EBITDA declined 26.0% Y-o-Y, to INR 746 mn. EBITDA margins declined
719bps Y-o-Y, to 13.4%, largely driven by 626bps increase in A&P costs. Staff cost
increased by 110bps and other expenses by 393bps. This was, however, slightly offset
by lower COGS costs of 411bps.
n 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.
n 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.
n Outlook and valuations: Robust; maintain ‘HOLD’
Colgate’s brand equity and distribution remain huge advantages. The company has
managed to maintain revenue growth and gross margin expansion even in this high
inflation environment. 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. We maintain ‘HOLD’
recommendation on the stock. On relative basis the stock is rated ‘Sector
Underperformer’.
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