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Market share gains
Global consumer major, Colgate Palmolive’s Franck Moison presented on
the emerging market opportunity at IF last week. Emerging markets have
in aggregate grown ahead of the overall group in the past six years
(5ppt/pa) with market share gains despite a high base. The growth
momentum is likely to continue and in India, the group plans to retain its
focus on oral care given the opportunity. While we too expect revenue
momentum to continue for India business, EPS should rise at a modest
11% Cagr over FY12-14 due to higher cost, rising tax rates. Retain Sell.
Emerging market a priority for the parent…
Colgate is a global giant with an estimated topline of around US$17bn in 2011
and a diversified portfolio spreading across oral care (42%), personal care
(22%), home care (22%) and pet nutrition (14%). While the group enjoys
leadership in most segments, the focus in Asia continues to be on oral care
which is ~60% of Asia revenues, given the opportunity. Colgate today derives
52% of revenues from emerging markets which have grown at ~11% in the
last six years cf. 6% for the overall group.
… and focus has helped in share gains in oral care across regions
This focussed approach has helped Colgate in gaining market shares in the
emerging markets which have moved up by ~1.5ppt to 51.9% in the last 10
years. Interestingly, in markets like Brazil, despite a high base, Colgate has
gained shares by 8ppt in the last 10 years to 70% now. Similarly, despite
being a relatively late entrant in China and a highly competitive/ fragmented
structure, its shares are now at 32% (cf. 12% in 1995).
While we too are not concerned on topline for India business…
Colgate India too has performed strongly with the last 5-year revenue Cagr of
14.5% and share gains of 6ppt+ to >53% (toothpaste). We expect growth
momentum to continue and build in ~13.5% Cagr over FY11-14 despite
potential entry of P&G into the segment. The management also indicated that
the focus would continue on oral in the strategic markets of India given low
penetrations (~60%) and there are no plans to expand into other segments.
… higher costs/ taxes would impact EPS growth; rich valuations
Despite building in a strong topline, we estimate Ebitda to rise at a lower
12.7% Cagr as we expect A&P expenses to average higher due to rise in
competition. Growth in earnings would be even lower at 11% Cagr due to rise
in tax rates which are likely to go up by >2ppt/pa over the next three years
(with Baddi facility coming out of tax free benefit, gradually). Valuations at
28.5x one year forward earnings are expensive, in this context. Maintain Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Market share gains
Global consumer major, Colgate Palmolive’s Franck Moison presented on
the emerging market opportunity at IF last week. Emerging markets have
in aggregate grown ahead of the overall group in the past six years
(5ppt/pa) with market share gains despite a high base. The growth
momentum is likely to continue and in India, the group plans to retain its
focus on oral care given the opportunity. While we too expect revenue
momentum to continue for India business, EPS should rise at a modest
11% Cagr over FY12-14 due to higher cost, rising tax rates. Retain Sell.
Emerging market a priority for the parent…
Colgate is a global giant with an estimated topline of around US$17bn in 2011
and a diversified portfolio spreading across oral care (42%), personal care
(22%), home care (22%) and pet nutrition (14%). While the group enjoys
leadership in most segments, the focus in Asia continues to be on oral care
which is ~60% of Asia revenues, given the opportunity. Colgate today derives
52% of revenues from emerging markets which have grown at ~11% in the
last six years cf. 6% for the overall group.
… and focus has helped in share gains in oral care across regions
This focussed approach has helped Colgate in gaining market shares in the
emerging markets which have moved up by ~1.5ppt to 51.9% in the last 10
years. Interestingly, in markets like Brazil, despite a high base, Colgate has
gained shares by 8ppt in the last 10 years to 70% now. Similarly, despite
being a relatively late entrant in China and a highly competitive/ fragmented
structure, its shares are now at 32% (cf. 12% in 1995).
While we too are not concerned on topline for India business…
Colgate India too has performed strongly with the last 5-year revenue Cagr of
14.5% and share gains of 6ppt+ to >53% (toothpaste). We expect growth
momentum to continue and build in ~13.5% Cagr over FY11-14 despite
potential entry of P&G into the segment. The management also indicated that
the focus would continue on oral in the strategic markets of India given low
penetrations (~60%) and there are no plans to expand into other segments.
… higher costs/ taxes would impact EPS growth; rich valuations
Despite building in a strong topline, we estimate Ebitda to rise at a lower
12.7% Cagr as we expect A&P expenses to average higher due to rise in
competition. Growth in earnings would be even lower at 11% Cagr due to rise
in tax rates which are likely to go up by >2ppt/pa over the next three years
(with Baddi facility coming out of tax free benefit, gradually). Valuations at
28.5x one year forward earnings are expensive, in this context. Maintain Sell.
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