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Colgate Palmolive's (CLGT) 2QFY12 results were in line with our estimates as PAT increased 7% to INR1,076m (against
our estimate of INR1,085m). Strong volume growth of 15% in toothpastes drove overall 13% volume growth, but increased
investment in new launches and aggressive promotion resulted in a 45% increase in ad-spends (up 310bp), which
impacted profitability.
2QFY12 results in line with estimates as adjusted PAT increases 7.2%: Net sales grew 19.1% to INR6.6b
(against our estimate of INR6.3b) due to overall volume growth of 13% and 15% volume growth in toothpaste. Gross
margin declined 20bp YoY to 59.9% (against our estimate of 59.8%) due to higher input costs (up 30bp QoQ). Adspends
increased 44% YoY to 17.4% of sales (up 310bp) led by new launches and aggressive sales promotion
schemes. EBITDA margins thus declined 190bp to 20.9%. EBITDA increased 9% YoY to INR1.4b (against our
estimate of INR1.4b). Adjusted PAT increased 7.2% to INR1,076m (against our estimate of INR1,085m). The tax rate
was higher by 80bp at 22.9%. Reported PAT declined by 1% to INR997m due to one-time VRS and exceptional costs
related to closure of its Hyderabad toothpowder factory.
Valuations at a high, factor in structural positives; Maintain Sell with a target price of INR827, 21% downside:
We believe CLGT's strong positioning and single-segment focus make it a formidable competitor in the oral-care
market and CLGT is likely to continue posting healthy double-digit growth over the medium term. We expect P&G to
launch Oral B toothpaste in India. This will trigger fresh competition in the toothpaste market in India, which would
have growth and margin implications for the entire oral-care segment. We increase our estimates for toothpaste
volume growth from 12.5% to 14% but continued input cost pressures and higher ad-spends keep our estimates
largely unchanged. We believe the stock, at 31.8x FY12E EPS of INR32.7 and 27.6x FY13E EPS of INR37.7, factors
in all structural positives and it trades at a 25% premium to its five-year average P/E multiple. Maintain Sell.
Colgate Palmolive's (CLGT) 2QFY12 results were in line with our estimates as PAT
increased 7% to INR1,076m (against our estimate of INR1,085m). Strong volume growth
of 15% in toothpastes drove 13% overall volume growth but increased investment in new
launches and aggressive promotions resulted in a 45% increase in ad-spends (up 310bp)
and impacted profitability.
We believe CLGT's strong positioning and single-segment focus make it a formidable
competitor in the oral-care market and CLGT is likely to continue to post healthy
double-digit growth over the medium term.
The first half however reflects the impact of stiffer competition with CLGT having
increased ad-spends by 310bp. We note that Colgate Sensitive Pro Relief and
Sensodyne are competing aggressively in the nascent sensitive-toothpaste market.
Besides, CLGT is aggressively promoting brands like CDC and Total, which would
keep margins in check.
We note that P&G has been aggressively expanding its Oral-B franchise across
markets. Recent launches include Nigeria, Ghana and the UK. The Columbia launch
is likely next year. It has achieved 5% share in Brazil (10% in channels it competes
in). We believe that some of these markets are potentially much smaller than the
Indian oral care market (USD1b) and we expect P&G to launch Oral B toothpaste in
India. This will trigger fresh competition in the toothpaste market in India, which would
have growth and margin implications for the oral-care segment.
We increase our estimates for CLGT's toothpaste volume growth from 12.5% to 14%
but continued input cost pressures (RM index at an all-time high) and higher ad-spends
keep our estimates largely unchanged. We estimate CLGT's PAT CAGR at 13% over
FY11-13, led largely by volume growth in the oral-care segment. We believe the stock,
at 30.7x FY12E EPS of INR32.7 and 26.6x FY13E EPS of INR37.7, factors in all
structural positives and trades at a 25% premium to its five-year average P/E multiple.
Maintain Sell.
2QFY12 results in line with estimates as adjusted PAT increases 7.2%
Net sales grew 19.1% to INR 6.6b (against our estimate of INR6.3b) due to overall
volume growth of 13% and 15% volume growth in toothpastes. The oral-care category
grew 20% in value terms in 2QFY12.
CLGT's volume market share in toothpastes was 52.6% and it was 36.3% in
toothbrushes over October 2010-September 2011. CLGT's mouthwash market share
was 26.4%.
CLGT's gross margin declined 20bp YoY to 59.9% (against our estimate of 59.8%)
due to higher input costs (up 30bp QoQ). Gross margin management has been good,
aided by cost control, price increases and premiumisation. Ad-spends increased 44%
YoY to 17.4% of sales (up 310bp) led by new launches and aggressive sales promotion
schemes. EBITDA margins thus declined 190bp to 20.9%.
EBITDA increased 9% YoY to INR1.4b (against our estimate of INR1.4b). Adjusted
PAT increased 7.2% to INR1,076m (against our estimate of INR1,085m). The tax
rate was higher by 80bp at 22.9%.
Reported PAT declined by 1% to INR997m due to one-time VRS and exceptional
costs related to closure of the Hyderabad toothpowder factory.
Toothpaste volume growth strong at 15%; Investments in new oral-care
launches impact profitability
2QFY12 toothpaste volume growth remained strong at 15% led by aggressive
investments across brands and the new launch of Colgate Sensitive Pro Relief. CLGT's
growth was above industry volume growth, which has been 12-13%, and CLGT's 12-
month average market share was 52.6% in volume terms. For toothbrushes CLGT's
market share was sequentially lower by 370bp at 36.3%. However CLGT's market
share by volume in the nascent mouthwash category rose 240bp QoQ to 26.4%.
Price increases of ~4% YTD resulted in gradual improvement in gross margins.
However, the full impact of this is likely to come through in 3QFY12. CLGT's input
cost index has not softened and any improvement in gross margins is likely to be very
gradual.
We are increasing volume growth estimates to 14% for toothpastes (12.5% earlier)
taking cognizance of CLGT's above-industry growth trajectory.
The launch of sensitive oral-care products across its categories (Sensitive Pro-Relief
in toothpastes, 360 Sensitive Pro-Relief toothbrush, Plax Sensitive mouthwash, 360
Surround) over the past two quarters resulted in A&P spends increasing by 310bp to
16.8% of sales in 1HFY12. Although we expect spends to fall marginally in 2HFY12,
we increase our A&P spend assumption from 16% to 16.5% of sales, factoring in
new launch expenses
Valuations at a high, factor in structural positives; Maintain Sell with a target
price of INR827, 21% downside
We believe CLGT's strong positioning and single-segment focus makes it a formidable
competitor in the oral-care market and CLGT is likely to continue posting healthy
double-digit growth over the medium term.
We expect P&G to launch Oral B toothpaste in India. This will trigger fresh competition
in the toothpaste market in India, which will have growth and margin implications for
the entire oral-care segment.
We increase our estimates for toothpaste volume growth from 12.5% to 14% but
continued input cost pressures and higher ad-spends keep our estimates largely
unchanged.
We believe the stock, 31.8x FY12E EPS of INR32.7 and 27.6x FY13E EPS of INR37.7,
factors in all structural positives and the stock trades at a 25% premium to its fiveyear
average P/E multiple. Maintain Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Colgate Palmolive's (CLGT) 2QFY12 results were in line with our estimates as PAT increased 7% to INR1,076m (against
our estimate of INR1,085m). Strong volume growth of 15% in toothpastes drove overall 13% volume growth, but increased
investment in new launches and aggressive promotion resulted in a 45% increase in ad-spends (up 310bp), which
impacted profitability.
2QFY12 results in line with estimates as adjusted PAT increases 7.2%: Net sales grew 19.1% to INR6.6b
(against our estimate of INR6.3b) due to overall volume growth of 13% and 15% volume growth in toothpaste. Gross
margin declined 20bp YoY to 59.9% (against our estimate of 59.8%) due to higher input costs (up 30bp QoQ). Adspends
increased 44% YoY to 17.4% of sales (up 310bp) led by new launches and aggressive sales promotion
schemes. EBITDA margins thus declined 190bp to 20.9%. EBITDA increased 9% YoY to INR1.4b (against our
estimate of INR1.4b). Adjusted PAT increased 7.2% to INR1,076m (against our estimate of INR1,085m). The tax rate
was higher by 80bp at 22.9%. Reported PAT declined by 1% to INR997m due to one-time VRS and exceptional costs
related to closure of its Hyderabad toothpowder factory.
Valuations at a high, factor in structural positives; Maintain Sell with a target price of INR827, 21% downside:
We believe CLGT's strong positioning and single-segment focus make it a formidable competitor in the oral-care
market and CLGT is likely to continue posting healthy double-digit growth over the medium term. We expect P&G to
launch Oral B toothpaste in India. This will trigger fresh competition in the toothpaste market in India, which would
have growth and margin implications for the entire oral-care segment. We increase our estimates for toothpaste
volume growth from 12.5% to 14% but continued input cost pressures and higher ad-spends keep our estimates
largely unchanged. We believe the stock, at 31.8x FY12E EPS of INR32.7 and 27.6x FY13E EPS of INR37.7, factors
in all structural positives and it trades at a 25% premium to its five-year average P/E multiple. Maintain Sell.
Colgate Palmolive's (CLGT) 2QFY12 results were in line with our estimates as PAT
increased 7% to INR1,076m (against our estimate of INR1,085m). Strong volume growth
of 15% in toothpastes drove 13% overall volume growth but increased investment in new
launches and aggressive promotions resulted in a 45% increase in ad-spends (up 310bp)
and impacted profitability.
We believe CLGT's strong positioning and single-segment focus make it a formidable
competitor in the oral-care market and CLGT is likely to continue to post healthy
double-digit growth over the medium term.
The first half however reflects the impact of stiffer competition with CLGT having
increased ad-spends by 310bp. We note that Colgate Sensitive Pro Relief and
Sensodyne are competing aggressively in the nascent sensitive-toothpaste market.
Besides, CLGT is aggressively promoting brands like CDC and Total, which would
keep margins in check.
We note that P&G has been aggressively expanding its Oral-B franchise across
markets. Recent launches include Nigeria, Ghana and the UK. The Columbia launch
is likely next year. It has achieved 5% share in Brazil (10% in channels it competes
in). We believe that some of these markets are potentially much smaller than the
Indian oral care market (USD1b) and we expect P&G to launch Oral B toothpaste in
India. This will trigger fresh competition in the toothpaste market in India, which would
have growth and margin implications for the oral-care segment.
We increase our estimates for CLGT's toothpaste volume growth from 12.5% to 14%
but continued input cost pressures (RM index at an all-time high) and higher ad-spends
keep our estimates largely unchanged. We estimate CLGT's PAT CAGR at 13% over
FY11-13, led largely by volume growth in the oral-care segment. We believe the stock,
at 30.7x FY12E EPS of INR32.7 and 26.6x FY13E EPS of INR37.7, factors in all
structural positives and trades at a 25% premium to its five-year average P/E multiple.
Maintain Sell.
2QFY12 results in line with estimates as adjusted PAT increases 7.2%
Net sales grew 19.1% to INR 6.6b (against our estimate of INR6.3b) due to overall
volume growth of 13% and 15% volume growth in toothpastes. The oral-care category
grew 20% in value terms in 2QFY12.
CLGT's volume market share in toothpastes was 52.6% and it was 36.3% in
toothbrushes over October 2010-September 2011. CLGT's mouthwash market share
was 26.4%.
CLGT's gross margin declined 20bp YoY to 59.9% (against our estimate of 59.8%)
due to higher input costs (up 30bp QoQ). Gross margin management has been good,
aided by cost control, price increases and premiumisation. Ad-spends increased 44%
YoY to 17.4% of sales (up 310bp) led by new launches and aggressive sales promotion
schemes. EBITDA margins thus declined 190bp to 20.9%.
EBITDA increased 9% YoY to INR1.4b (against our estimate of INR1.4b). Adjusted
PAT increased 7.2% to INR1,076m (against our estimate of INR1,085m). The tax
rate was higher by 80bp at 22.9%.
Reported PAT declined by 1% to INR997m due to one-time VRS and exceptional
costs related to closure of the Hyderabad toothpowder factory.
Toothpaste volume growth strong at 15%; Investments in new oral-care
launches impact profitability
2QFY12 toothpaste volume growth remained strong at 15% led by aggressive
investments across brands and the new launch of Colgate Sensitive Pro Relief. CLGT's
growth was above industry volume growth, which has been 12-13%, and CLGT's 12-
month average market share was 52.6% in volume terms. For toothbrushes CLGT's
market share was sequentially lower by 370bp at 36.3%. However CLGT's market
share by volume in the nascent mouthwash category rose 240bp QoQ to 26.4%.
Price increases of ~4% YTD resulted in gradual improvement in gross margins.
However, the full impact of this is likely to come through in 3QFY12. CLGT's input
cost index has not softened and any improvement in gross margins is likely to be very
gradual.
We are increasing volume growth estimates to 14% for toothpastes (12.5% earlier)
taking cognizance of CLGT's above-industry growth trajectory.
The launch of sensitive oral-care products across its categories (Sensitive Pro-Relief
in toothpastes, 360 Sensitive Pro-Relief toothbrush, Plax Sensitive mouthwash, 360
Surround) over the past two quarters resulted in A&P spends increasing by 310bp to
16.8% of sales in 1HFY12. Although we expect spends to fall marginally in 2HFY12,
we increase our A&P spend assumption from 16% to 16.5% of sales, factoring in
new launch expenses
Valuations at a high, factor in structural positives; Maintain Sell with a target
price of INR827, 21% downside
We believe CLGT's strong positioning and single-segment focus makes it a formidable
competitor in the oral-care market and CLGT is likely to continue posting healthy
double-digit growth over the medium term.
We expect P&G to launch Oral B toothpaste in India. This will trigger fresh competition
in the toothpaste market in India, which will have growth and margin implications for
the entire oral-care segment.
We increase our estimates for toothpaste volume growth from 12.5% to 14% but
continued input cost pressures and higher ad-spends keep our estimates largely
unchanged.
We believe the stock, 31.8x FY12E EPS of INR32.7 and 27.6x FY13E EPS of INR37.7,
factors in all structural positives and the stock trades at a 25% premium to its fiveyear
average P/E multiple. Maintain Sell.
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