Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Colgate-Palmolive (India) (CLGT)
Consumer products
Competitive pressure triggers innovations. Highlights of the quarter are >10%
volume growth in toothpaste and inflation in key raw materials (menthol and packing
material). Competitive pressure (GSK’s Sensodyne and potential launch of Oral B) has
compelled Colgate to intensify its market development activity and innovative launches.
We retain our SELL rating on (1) deterioration in the competitive position as the
effective excise rate increases, (2) limited pricing power and (3) mix deterioration.
Our target price is Rs900 on FY2013E (Rs780 earlier).
4QFY11 – good volume growth, gross margin pressure
Colgate reported sales of Rs5.8 bn (+13%, KIE estimate Rs6 bn), EBITDA of Rs1.4 bn (+0.2%, KIE
estimate of Rs1.5 bn) and PAT of Rs1.1 bn (-9%, KIE estimate of Rs1.1 bn).
Sales growth of 13% yoy was largely driven by volume growth – toothpaste volume growth of
likely >10% yoy in 4QFY11. For FY2011, toothpaste volume growth was 13% and toothbrush
was 18%
The cost line items are not comparable on a yoy basis as the company has merged subsidiaries
engaged in contract manufacturing with itself
The management indicated that key raw material items such as flavors, menthol and packing
material (crude linked) have been inflationary which impacted gross margin for the quarter
(59% in 4QFY11). Adspends at 13.8% are lower sequentially (21.6% in 3QFY11) and on a yoy
basis (16.1% in 4QFY10), likely due to phasing out – for FY2011, adspends as a percentage of
sales were 15.7%.
Other takeaways from the analyst meet
~50% of production is presently at Baddi. Incremental production will be shifted to other
locations (likely Goa, in our view) as (1) fiscal benefits expire by 2015 and (2) capacity utilization
increases at Baddi (>90% already)
Effective tax rate in FY2011 was 22.6% against 12.7% in FY2010. Over the next four years, the
company will move towards marginal tax rate
Low price point (LPP) segment grew at 13.5% during the year in value terms for Colgate. This
segment is seeing strong growth with HUL also having launched Pepsodent at LPP
Colgate covers 4.6 mn outlets nationally
Innovations / new launches / market development activities at their peak ala
Nestle
Compelled by competitive pressure (from GSK’s Sensodyne for instance, which is being
actively marketed and from the potential launch of Oral B by P&G), Colgate has intensified
its market development activities and innovative launches. Some of the recent offerings
which are primarily in the premium category include:
Oral care – extension of the mouthwash portfolio to include premium offerings (Colgate
Plax Complete Care and Colgate Plax Sensitive), Colgate 360 Actiflex toothbrush (priced
at Rs69) and Colgate Sensitive Pro Relief toothpaste (priced at Rs120 for 80 gm) and
Sensitive toothbrush (priced at Rs40)
Personal care - Palmolive Aroma Therapy morning tonic bathing shower gel(priced at
Rs115 for 250 ml)
In addition to school contact programs and Oral health month to drive penetration-led
growth, the company launched an “Ask the Dentist” initiative which gives consumers live
access to a dentist by a dialing a toll free number.
We find a Colgate in a similar position as Nestle (in the instant noodles category). Spurred to
action by competitive pressures after a fairly benign competitive environment in the past five
years, Colgate has increased its market development activities and is expanding its product
portfolio.
In our view, while these new product launches have high growth potential, it may take time
for Colgate to carve a niche for itself. Further, we highlight that while Colgate has been a
leader in the oral care category with >50% market share, in terms of innovation, it has been
a follower rather than a pioneer – for e.g., it stepped up market development activity in
Colgate Plax mouthwash after witnessing strong activity in this segment by Johnson &
Johnson (Listerine), Colgate Sensitive Pro Relief was introduced after GSK’s Sensodyne.
Retain SELL
We reiterate our SELL rating on the stock. Our EPS estimates are Rs34.3 and Rs39.2 for
FY2012E and FY2013E, respectively. We roll over estimates to FY2013E with a target price
of Rs900 (Rs780 earlier) valued at 23X FY2013E. Our cautious view stems from:
(1) questionable amount of incremental penetration-led growth, (2) deterioration in
competitive position as effective excise rate increases, (3) limited pricing power, (4) mix
deterioration and (5) premium valuations for sub-par earnings growth.
Key risks are (1) muted competitive activity which would provide pricing power to Colgate,
(2) any inorganic activity or expansion of capacity in tax-exempt locations (particularly North-
East), and (3) higher-than-expected volume growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Colgate-Palmolive (India) (CLGT)
Consumer products
Competitive pressure triggers innovations. Highlights of the quarter are >10%
volume growth in toothpaste and inflation in key raw materials (menthol and packing
material). Competitive pressure (GSK’s Sensodyne and potential launch of Oral B) has
compelled Colgate to intensify its market development activity and innovative launches.
We retain our SELL rating on (1) deterioration in the competitive position as the
effective excise rate increases, (2) limited pricing power and (3) mix deterioration.
Our target price is Rs900 on FY2013E (Rs780 earlier).
4QFY11 – good volume growth, gross margin pressure
Colgate reported sales of Rs5.8 bn (+13%, KIE estimate Rs6 bn), EBITDA of Rs1.4 bn (+0.2%, KIE
estimate of Rs1.5 bn) and PAT of Rs1.1 bn (-9%, KIE estimate of Rs1.1 bn).
Sales growth of 13% yoy was largely driven by volume growth – toothpaste volume growth of
likely >10% yoy in 4QFY11. For FY2011, toothpaste volume growth was 13% and toothbrush
was 18%
The cost line items are not comparable on a yoy basis as the company has merged subsidiaries
engaged in contract manufacturing with itself
The management indicated that key raw material items such as flavors, menthol and packing
material (crude linked) have been inflationary which impacted gross margin for the quarter
(59% in 4QFY11). Adspends at 13.8% are lower sequentially (21.6% in 3QFY11) and on a yoy
basis (16.1% in 4QFY10), likely due to phasing out – for FY2011, adspends as a percentage of
sales were 15.7%.
Other takeaways from the analyst meet
~50% of production is presently at Baddi. Incremental production will be shifted to other
locations (likely Goa, in our view) as (1) fiscal benefits expire by 2015 and (2) capacity utilization
increases at Baddi (>90% already)
Effective tax rate in FY2011 was 22.6% against 12.7% in FY2010. Over the next four years, the
company will move towards marginal tax rate
Low price point (LPP) segment grew at 13.5% during the year in value terms for Colgate. This
segment is seeing strong growth with HUL also having launched Pepsodent at LPP
Colgate covers 4.6 mn outlets nationally
Innovations / new launches / market development activities at their peak ala
Nestle
Compelled by competitive pressure (from GSK’s Sensodyne for instance, which is being
actively marketed and from the potential launch of Oral B by P&G), Colgate has intensified
its market development activities and innovative launches. Some of the recent offerings
which are primarily in the premium category include:
Oral care – extension of the mouthwash portfolio to include premium offerings (Colgate
Plax Complete Care and Colgate Plax Sensitive), Colgate 360 Actiflex toothbrush (priced
at Rs69) and Colgate Sensitive Pro Relief toothpaste (priced at Rs120 for 80 gm) and
Sensitive toothbrush (priced at Rs40)
Personal care - Palmolive Aroma Therapy morning tonic bathing shower gel(priced at
Rs115 for 250 ml)
In addition to school contact programs and Oral health month to drive penetration-led
growth, the company launched an “Ask the Dentist” initiative which gives consumers live
access to a dentist by a dialing a toll free number.
We find a Colgate in a similar position as Nestle (in the instant noodles category). Spurred to
action by competitive pressures after a fairly benign competitive environment in the past five
years, Colgate has increased its market development activities and is expanding its product
portfolio.
In our view, while these new product launches have high growth potential, it may take time
for Colgate to carve a niche for itself. Further, we highlight that while Colgate has been a
leader in the oral care category with >50% market share, in terms of innovation, it has been
a follower rather than a pioneer – for e.g., it stepped up market development activity in
Colgate Plax mouthwash after witnessing strong activity in this segment by Johnson &
Johnson (Listerine), Colgate Sensitive Pro Relief was introduced after GSK’s Sensodyne.
Retain SELL
We reiterate our SELL rating on the stock. Our EPS estimates are Rs34.3 and Rs39.2 for
FY2012E and FY2013E, respectively. We roll over estimates to FY2013E with a target price
of Rs900 (Rs780 earlier) valued at 23X FY2013E. Our cautious view stems from:
(1) questionable amount of incremental penetration-led growth, (2) deterioration in
competitive position as effective excise rate increases, (3) limited pricing power, (4) mix
deterioration and (5) premium valuations for sub-par earnings growth.
Key risks are (1) muted competitive activity which would provide pricing power to Colgate,
(2) any inorganic activity or expansion of capacity in tax-exempt locations (particularly North-
East), and (3) higher-than-expected volume growth.
No comments:
Post a Comment