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Colgate-Palmolive (India) (CLGT)
Consumer products
Robust sales growth; adspends at elevated levels triggered by competition.
2QFY12 highlights – (1) 13% volume growth, (2) flat gross margins yoy and (3) high
adspends (+309 bps) leading to 220 bps decline in EBITDA margin, and (4) lower
effective tax rate at 21%. Colgate’s consistent double-digit volume growth is
commendable and is a testimony to its market development activities and consistency in
approach. Our SELL rating is predicated on expensive valuations (for weak profit
performance) and the event risk of P&G’s likely entry into oral care.
Good volume growth; higher adspends lead to sharp decline in EBITDA margin
Colgate reported net sales of Rs6,755 mn (+19%, KIE estimate Rs6,675 mn), EBITDA of Rs1,390
mn (+7%, KIE estimate Rs1,532 mn) and PAT of Rs1,079 mn (+8%, KIE estimate Rs1,182 mn).
Sales growth of 19% yoy was driven by volume growth of 13% with toothpaste volume
growth likely being ~14%. The quarter likely benefitted from ‘Oral Health Month’ marketing
program as well as slow growth in oral care for Dabur due to supply constraint of a key
ingredient in Red Toothpaste which led to no sales in the month of July.
EBITDA margin declined 220 bps to 20.6% primarily due to higher adspends (increase of 309
bps yoy to 17.4% of sales) – likely front-ended investments in series of new launches like
‘Colgate Sensitive Pro-relief toothpaste’, ‘Colgate Plax mouthwash’ etc. We expect adspends to
remain at ~16% for full year FY2012E. Gross margins were flat (price increases to offset likely
higher sorbitol prices). Staff costs were lower yoy (171 bps).
Effective tax rate was significantly lower at 21% for the quarter. The management guides for
ETR of ~25% in FY2012E and ~27% in FY2013E.
Extraordinary expense of Rs82 mn is towards voluntary retirement scheme offered to employees
of the Hyderabad toothpowder factory. The company has likely merged its Hyderabad
operations with its erstwhile contract manufacturer (acquired by Colgate in FY2011), CC
Healthcare Products Pvt. Ltd.
Retain SELL on expensive valuations (for weak profit performance) and the event risk of P&G entry
In our view, Colgate’s consistent double-digit volume growth is commendable and is a testimony
to Colgate’s market development activities and consistency in approach (preference for volumes
over short-term profits). Unlike Street, we are not overtly worried about the single-product nature
of Colgate’s business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Colgate-Palmolive (India) (CLGT)
Consumer products
Robust sales growth; adspends at elevated levels triggered by competition.
2QFY12 highlights – (1) 13% volume growth, (2) flat gross margins yoy and (3) high
adspends (+309 bps) leading to 220 bps decline in EBITDA margin, and (4) lower
effective tax rate at 21%. Colgate’s consistent double-digit volume growth is
commendable and is a testimony to its market development activities and consistency in
approach. Our SELL rating is predicated on expensive valuations (for weak profit
performance) and the event risk of P&G’s likely entry into oral care.
Good volume growth; higher adspends lead to sharp decline in EBITDA margin
Colgate reported net sales of Rs6,755 mn (+19%, KIE estimate Rs6,675 mn), EBITDA of Rs1,390
mn (+7%, KIE estimate Rs1,532 mn) and PAT of Rs1,079 mn (+8%, KIE estimate Rs1,182 mn).
Sales growth of 19% yoy was driven by volume growth of 13% with toothpaste volume
growth likely being ~14%. The quarter likely benefitted from ‘Oral Health Month’ marketing
program as well as slow growth in oral care for Dabur due to supply constraint of a key
ingredient in Red Toothpaste which led to no sales in the month of July.
EBITDA margin declined 220 bps to 20.6% primarily due to higher adspends (increase of 309
bps yoy to 17.4% of sales) – likely front-ended investments in series of new launches like
‘Colgate Sensitive Pro-relief toothpaste’, ‘Colgate Plax mouthwash’ etc. We expect adspends to
remain at ~16% for full year FY2012E. Gross margins were flat (price increases to offset likely
higher sorbitol prices). Staff costs were lower yoy (171 bps).
Effective tax rate was significantly lower at 21% for the quarter. The management guides for
ETR of ~25% in FY2012E and ~27% in FY2013E.
Extraordinary expense of Rs82 mn is towards voluntary retirement scheme offered to employees
of the Hyderabad toothpowder factory. The company has likely merged its Hyderabad
operations with its erstwhile contract manufacturer (acquired by Colgate in FY2011), CC
Healthcare Products Pvt. Ltd.
Retain SELL on expensive valuations (for weak profit performance) and the event risk of P&G entry
In our view, Colgate’s consistent double-digit volume growth is commendable and is a testimony
to Colgate’s market development activities and consistency in approach (preference for volumes
over short-term profits). Unlike Street, we are not overtly worried about the single-product nature
of Colgate’s business.
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