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Weak 1QFY12 results
Colgate continued to show volatile earnings trend as net earnings
declined 18% YoY to Rs1bn, much below our (and bloomberg consensus)
estimates. Ebitda margins declined 8ppt from an unsustainably high level
led by higher input, A&P and overheads; rise in tax rate further impacted.
Volume led revenue growth of 16% was the only positive in the result.
We cut our EPS estimates by 4-5% over FY12-13 to factor in higher costs
and downgrade the stock to SELL as valuations at 29x one year forward
PE are expensive in the context of 11% EPS Cagr over FY12-14.
1QFY12 below estimates due to higher costs
Colgate’s 1Q net earnings declined 18% YoY to Rs1bn which were sharply
below our estimates due to higher costs. Ebitda too declined 15% YoY as
margins contracted by 780bps YoY, though we note that 1QFY11 had a high
base which too impacted the comparisons. While operating income declined
13% YoY, financial income more than doubled.
Cost pressures impacted the performance…
Colgate’s gross margins contracted 320bps YoY to 60% while A&P expenses
rose 300bps to 16.2%. While we were already building in higher A&P, the
extent of rise has surprised us. For full FY12, we model in ~50bps rise to
16.2%. Other expenses too rose by a sharp 24% which were also higher than
our estimates. With Baddi unit out of full tax exemption, tax rates continued
to rise and came-in at 27.3% cf. 22.4% for FY11 and for full year, FY12, we
continue to model in a 24.5% tax rate.
… even while revenue momentum continued
Colgate’s revenue growth of 16% with underlying volume growing at 12%
was however ahead of estimates. The volume growth for toothpaste was even
higher at 14% and this was 14th quarter in row of double digit growth. Volume
market shares for 12-month ended May-11 were at 53% while the company
increased shares in small but rapidly growing mouthwash segment to 24%.
The company had aggressively launched new products during 1Q viz. Colgate
Sensitive Pro-Relief Toothpaste, Colgate 360 Sensitive Pro-Relief Toothbrush,
Colgate Plax Sensitive Mouthwash etc.
Cut estimates by 4-5% over FY12-13; downgrade to Sell
We cut our EPS estimates by 4-5% over FY12-13 to factor in lower 1Q and as
we raise our cost estimates (A&P, input, overheads). We downgrade the stock
to SELL as valuations at 29x one year PE are expensive in the context of 11%
EPS Cagr over FY12-14; target px: Rs825/sh (23x FY12 earnings; -16%).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weak 1QFY12 results
Colgate continued to show volatile earnings trend as net earnings
declined 18% YoY to Rs1bn, much below our (and bloomberg consensus)
estimates. Ebitda margins declined 8ppt from an unsustainably high level
led by higher input, A&P and overheads; rise in tax rate further impacted.
Volume led revenue growth of 16% was the only positive in the result.
We cut our EPS estimates by 4-5% over FY12-13 to factor in higher costs
and downgrade the stock to SELL as valuations at 29x one year forward
PE are expensive in the context of 11% EPS Cagr over FY12-14.
1QFY12 below estimates due to higher costs
Colgate’s 1Q net earnings declined 18% YoY to Rs1bn which were sharply
below our estimates due to higher costs. Ebitda too declined 15% YoY as
margins contracted by 780bps YoY, though we note that 1QFY11 had a high
base which too impacted the comparisons. While operating income declined
13% YoY, financial income more than doubled.
Cost pressures impacted the performance…
Colgate’s gross margins contracted 320bps YoY to 60% while A&P expenses
rose 300bps to 16.2%. While we were already building in higher A&P, the
extent of rise has surprised us. For full FY12, we model in ~50bps rise to
16.2%. Other expenses too rose by a sharp 24% which were also higher than
our estimates. With Baddi unit out of full tax exemption, tax rates continued
to rise and came-in at 27.3% cf. 22.4% for FY11 and for full year, FY12, we
continue to model in a 24.5% tax rate.
… even while revenue momentum continued
Colgate’s revenue growth of 16% with underlying volume growing at 12%
was however ahead of estimates. The volume growth for toothpaste was even
higher at 14% and this was 14th quarter in row of double digit growth. Volume
market shares for 12-month ended May-11 were at 53% while the company
increased shares in small but rapidly growing mouthwash segment to 24%.
The company had aggressively launched new products during 1Q viz. Colgate
Sensitive Pro-Relief Toothpaste, Colgate 360 Sensitive Pro-Relief Toothbrush,
Colgate Plax Sensitive Mouthwash etc.
Cut estimates by 4-5% over FY12-13; downgrade to Sell
We cut our EPS estimates by 4-5% over FY12-13 to factor in lower 1Q and as
we raise our cost estimates (A&P, input, overheads). We downgrade the stock
to SELL as valuations at 29x one year PE are expensive in the context of 11%
EPS Cagr over FY12-14; target px: Rs825/sh (23x FY12 earnings; -16%).
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