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Strong volume growth continues
Colgate-Palmolive posted strong 20% revenue growth in Q3FY12 on the back
of 15% volume growth in its core toothpaste category. Lower than expected
A&P and other expenditure led to margin expansion and strong 74% PAT
growth. We believe premium valuations are not sustainable and hence
maintain SELL on the stock.
Robust growth: Colgate posted robust 20% sales growth on the back of
strong 15% YoY volume growth in the toothpaste category with revenue at
Rs6898mn (up 19.6% YoY and 2% QoQ). With significant margin expansion on
the back of lower A&P spend coupled with low admin & other expenditure,
PAT was higher than expected at Rs1156mn (up 74% YoY; up 16% QoQ).
Strong growth across categories: For the 15th consecutive quarter the
company posted a double digit volume growth led by the toothpaste
category. Even tough the company hiked prices by 3-5% early in FY12, volume
growth has only got stronger. Market share in toothpaste dipped marginally
by 10bps to 52.5%. Market share in higher price point products such as
mouthwash grew to 27.4%. In the toothbrush category the company launched
a few new products for adults and kids.
Margin expansion: Operating margins for the company expanded by 551bps
YoY and 228bps on a sequential basis to 21.6%. Gross profit margins have
steadily increased in the last three consecutive quarters and are now at 63.4%
even thought commodity pressure continues. A&P spend was at 15.6% to
sales compared to 20.9% in Q3FY11. We expect the A&P spend to increase in
Q4FY12 as the ‘Oral Health Month’ is currently spread across Dec 2011 and
January 2012. OHM aims to create oral awareness in approximately 10K
schools and reach 2mn school children across India. Tax rate during the
quarter was 22.2% against 27.4% in Q3FY11. We expect this to increase in
Q4FY12 and go up further from FY13.
Other highlights: Company is in the process of setting up a new toothpaste
manufacturing facility in Sanand, Gujarat and has paid Rs426mn during the
quarter towards the allotment of leasehold land for the facility. Company has
paid its second interim dividend of Rs9 during the quarter and for 9mFY12 it
has already paid Rs17 as dividend so far.
Estimates lowered; Maintain SELL: We have cut our FY12/FY13 estimates
factoring in higher A&P spend, lower gross margin and higher tax rate. The
stock is currently trading at 32x FY12E and 26.5x FY13E which is ~20% above
historical average. We don’t believe such premium valuations will sustain for
long given the increasing competitive intensity which would limit pricing
power and further increase A&P spend. We maintain Sell rating with revised
target price of Rs885 (23x FY13E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong volume growth continues
Colgate-Palmolive posted strong 20% revenue growth in Q3FY12 on the back
of 15% volume growth in its core toothpaste category. Lower than expected
A&P and other expenditure led to margin expansion and strong 74% PAT
growth. We believe premium valuations are not sustainable and hence
maintain SELL on the stock.
Robust growth: Colgate posted robust 20% sales growth on the back of
strong 15% YoY volume growth in the toothpaste category with revenue at
Rs6898mn (up 19.6% YoY and 2% QoQ). With significant margin expansion on
the back of lower A&P spend coupled with low admin & other expenditure,
PAT was higher than expected at Rs1156mn (up 74% YoY; up 16% QoQ).
Strong growth across categories: For the 15th consecutive quarter the
company posted a double digit volume growth led by the toothpaste
category. Even tough the company hiked prices by 3-5% early in FY12, volume
growth has only got stronger. Market share in toothpaste dipped marginally
by 10bps to 52.5%. Market share in higher price point products such as
mouthwash grew to 27.4%. In the toothbrush category the company launched
a few new products for adults and kids.
Margin expansion: Operating margins for the company expanded by 551bps
YoY and 228bps on a sequential basis to 21.6%. Gross profit margins have
steadily increased in the last three consecutive quarters and are now at 63.4%
even thought commodity pressure continues. A&P spend was at 15.6% to
sales compared to 20.9% in Q3FY11. We expect the A&P spend to increase in
Q4FY12 as the ‘Oral Health Month’ is currently spread across Dec 2011 and
January 2012. OHM aims to create oral awareness in approximately 10K
schools and reach 2mn school children across India. Tax rate during the
quarter was 22.2% against 27.4% in Q3FY11. We expect this to increase in
Q4FY12 and go up further from FY13.
Other highlights: Company is in the process of setting up a new toothpaste
manufacturing facility in Sanand, Gujarat and has paid Rs426mn during the
quarter towards the allotment of leasehold land for the facility. Company has
paid its second interim dividend of Rs9 during the quarter and for 9mFY12 it
has already paid Rs17 as dividend so far.
Estimates lowered; Maintain SELL: We have cut our FY12/FY13 estimates
factoring in higher A&P spend, lower gross margin and higher tax rate. The
stock is currently trading at 32x FY12E and 26.5x FY13E which is ~20% above
historical average. We don’t believe such premium valuations will sustain for
long given the increasing competitive intensity which would limit pricing
power and further increase A&P spend. We maintain Sell rating with revised
target price of Rs885 (23x FY13E).
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