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Colgate-Palmolive India
F2Q11: Volume Growth
Momentum Sustained;
Margin Lower than Expected
Quick Comment – Retain EW: Colgate has
demonstrated that the strategy of focusing on core
business rather than diversifying into new categories
works well, especially in the context of the underpenetration
that characterizes the oral care segment in
India. Colgate reported revenue, operating profit, and
net profit growth of 13%, 17%, and 12%, respectively,
for F2Q11, which compares with our expectations of
13%, 23%, and 17%, respectively. Toothpaste volume
growth was robust at 12%, driving overall volume growth
of 13% for the quarter. The company acquired its
manufacturing units in F4Q10 and F1Q11, due to which
numbers above EBITDA are not comparable with
previous year’s numbers. That has little impact on net
profit, however.
OPM affected by actuarial adjustments for staff:
OPM expanded by 80bp during the quarter, lower than
our expectation of a 200bp increase largely due to: 1)
consolidation of its 100% subsidiary, CC Healthcare;
and 2) one-off expenses on actuarial adjustments of
staff costs. Ad spending, which declined by over 260bp
in F2Q11, will likely rise in the coming quarters given our
view that the category is likely to witness intensifying
competition in the medium term.
Market share at 53.3% by volume: Market share in
toothpaste rose to 53.3% for Jan-Sept10 (it was 52.0%
during Jan-Sept09). For toothbrushes, volume grew
24% in F2Q and market share for the Jan-Sept period
improved to 40.5% against 38.9% a year ago.
Why are we not Overweight? 1) The market appears
to be underestimating the potential increase in
competition from HUL and Dabur, particularly in the low
price point segment. P&G also has the potential to enter
the oral care segment. 2) A combination of higher comps
for operating margins and increased tax rate will likely
constrain earnings progression.
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