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Colgate ru4 qfy2010-270510
1. 4QFY2010 Result Update I FMCG
May 27, 2010
Colgate-Palmolive ACCUMULATE
CMP Rs715
Performance Highlights Target Price Rs752
We highlight the fact that the current quarter results are not comparable Investment Period 12 Months
yoy/qoq, due to the amalgamation of Professional Oral Care Products Pvt Ltd
(POC), Goa, effective from April 1, 2009, which was reflected entirely during Stock Info
the current quarter. Colgate posted a modest Top-line growth of 13.4% yoy, Sector FMCG
in-line with our estimates. Colgate’s Earnings registered a strong growth of
39.6% yoy, significantly ahead of our expectations of a 19.7% growth, aided Market Cap (Rs cr) 9,720
by significant Margin expansion (largely Gross Margin) and a dip in the Tax
Beta 0.4
rate to 9.1%. We have marginally tweaked our estimates on the Operating
front to account for the higher Gross Margins. However, we have reduced our 52 WK High / Low 772/447
Earnings estimates by 1-2% to account for the higher Tax rate (as tax benefits
Avg. Daily Volume 45,993
from Baddi are set to reduce from 100% to 30% from FY2011E). We maintain
an Accumulate on the stock. Face Value (Rs) 1
Earnings grow ~50% yoy, beat estimates by 28%: Colgate posted a modest BSE Sensex 16,666
Top-line growth of 13.4% yoy to Rs517cr. The growth was led by a robust
Nifty 5,003
11% overall volume growth, supported by 11% yoy volume growth in its core
Toothpaste category. On the Operating front, the company delivered a sharp Reuters Code COLG.BO
Margin expansion of 638bp yoy to 24.1%, driving a healthy growth in EBITDA
Bloomberg Code CLGT @IN
of 54.1% yoy to Rs124.7cr. Margins expanded largely on account of a sharp
jump in Gross Margins (up 1,415bp yoy). However, a significant rise in Other Shareholding Pattern (%)
expenditure (up 745bp yoy, 73% yoy in absolute terms), coupled with a rise in
advertising expenditure (up 72bp yoy), curtailed further Margin expansion. Promoters 51.0
Earnings registered a strong growth of 39.6% yoy to Rs114.4cr, despite a MF/Banks/Indian FIs 11.5
224.4% yoy increase in the Depreciation to Rs20.6cr (Rs6.4cr), aided by
significant Margin expansion (largely Gross Margin) and a 535bp yoy dip in FII/NRIs/OCBs 15.8
the Tax rate to 9.1%. Indian Public 21.7
Outlook and Valuation: During FY2010E-12E, we expect Colgate to report a Abs. (%) 3m 1yr 3yr
CAGR of 15.1% in its Top-line, backed by an overall volume growth of 10-
11% and value growth of 3-4%. On the Operating front, we expect the Sensex 1.4 18.1 16.2
Margins to remain stable, as the company is likely to re-invest its gains from a
benign input cost environment into higher advertising spends to combat the Colgate 3.4 55.4 91.5
potential heightened competitive intensity in the Oral care market. At the CMP
of Rs715, the stock is trading at 19.3x FY2012E EPS of Rs37.1 (at a 5%
discount to its historical Earnings). Hence, we maintain an Accumulate on the
stock, with a Target Price of Rs752.
Key Financials
Y/E Mar (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,695 1,962 2,268 2,599
% chg 15.0 15.8 15.6 14.6
Net Profit (Adj) 290.2 423.3 442.5 504.2
% chg 25.3 45.8 4.5 13.9
OPM (%) 16.3 21.7 21.9 22.1
EPS (Rs) 21.3 31.1 32.5 37.1
P/E (x) 33.5 23.0 22.0 19.3 Anand Shah
P/BV (x) 44.9 29.8 23.5 18.1 Tel: 022 – 4040 3800 Ext: 334
E-mail: anand.shah@angeltrade.com
RoE (%) 134.2 129.8 106.9 94.0
RoCE (%) 124.2 124.1 116.6 103.9
Chitrangda Kapur
EV/Sales (x) 5.6 4.8 4.1 3.5
Tel: 022 – 4040 3800 Ext: 323
EV/EBITDA (x) 34.4 22.0 18.6 15.7
E-mail: chitrangdar.kapur@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Colgate-Palmolive I 4QFY2010 Result Update
Exhibit 1: Quarterly Performance Update
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY2010 FY2009 % chg
Net Sales 516.6 455.5 13.4 1,962.5 1,694.8 15.8
Consumption of RM 154.3 200.5 (23.0) 776.8 741.3 4.8
(% of Sales) 29.9 44.0 39.6 43.7
Staff Cost 42.1 38.9 8.2 159.1 138.5 14.8
(% of Sales) 8.1 8.5 8.1 8.2
Advertising 83.4 70.2 18.7 299.4 271.7 10.2
(% of Sales) 16.1 15.4 15.3 16.0
Other Expenses 112.1 64.9 72.7 301.4 267.7 12.6
(% of Sales) 21.7 14.3 15.4 15.8
Total Expenditure 391.9 374.6 4.6 1,536.7 1,419.3 8.3
Operating Profit 124.7 80.9 54.1 425.7 275.5 54.5
OPM (%) 24.1 17.8 21.7 16.3
Interest 0.4 0.1 263.6 1.5 1.1 36.4
Depreciation/Amortisation 20.6 6.4 224.4 37.6 23.0 63.7
Other Income 22.2 20.5 8.0 98.1 98.7 (0.6)
PBT (excl Ext. Items) 125.9 95.0 32.5 484.8 350.2 38.4
Ext Income/(Expenses) - (4.9) - (4.9)
PBT (incl Ext. Items) 125.9 90.1 39.7 484.8 345.3 40.4
(% of Sales) 24.4 19.8 24.7 20.4
Prov. for Taxation 11.5 13.1 (11.9) 61.5 55.1 11.7
(% of PBT) 9.1 14.5 12.7 16.0
Recurring PAT 114.4 77.1 48.4 423.3 290.2 45.8
PATM (%) 22.1 16.9 21.6 17.1
Reported PAT 13.6 13.6 13.6 13.6
Equity Shares (cr) 8.4 5.7 31.1 21.3 45.8
EPS (Rs) 114.4 81.9 39.6 423.3 295.1 43.4
Source: Company, Angel Research
We highlight the fact that the current quarter results are not comparable yoy/qoq,
due to the amalgamation of Professional Oral Care Products Pvt Ltd (POC), Goa,
effective from April 1, 2009. The same has been reflected entirely in the numbers of
the current quarter in: 1) higher depreciation charges, 2) a significant reduction in
the purchase of traded goods, leading to strong Gross Margin expansion, and 3) a
lower Tax rate.
Top-line growth in-line with estimates; Volume growth steady at 11%
Colgate posted a modest Top-line growth of 13.4% yoy to Rs516.6cr (Rs455.5cr), in-
line with our estimates. The growth was led by a robust 11% overall volume growth,
supported by 11% yoy volume growth in its core Toothpaste category. The company
has increased its leadership position by 170bp yoy to a 53.4% (51.7%) volume
market share during the January – March, 2010. The flagship brands, Colgate
Dental Cream, Active Salt and Cibaca, continued to contribute to the consistent
volume growth. The Toothbrush category witnessed a robust growth this quarter,
increasing its volume market share by 340bp yoy to 41.2% (37.8%), while the
volume market share of the Toothpowder category registered a marginal decline by
90bp to 48.3% (49.2%).
May 27, 2010 2
3. Colgate-Palmolive I 4QFY2010 Result Update
Recurring Earnings growth strong at 40%, beat estimates by 17%
Colgate’s Earnings for the quarter on a recurring basis registered a strong growth of
39.6% yoy to Rs114.4cr (Rs81.9cr), significantly ahead of our expectations of a
19.7% growth to Rs98cr. The higher-than-anticipated growth in the Bottom-line,
despite a 224.4% yoy increase in the Depreciation to Rs20.6cr (Rs6.4cr), was aided
by significant Margin expansion (largely Gross Margin) and a 535bp yoy dip in the
Tax rate to 9.1%. On a reported basis, Colgate reported a 48.4% yoy growth in
Earnings to Rs114.4cr (Rs77.1cr), as 4QFY2009 had an extraordinary charge of
Rs4.9cr on account of VRS.
OPM expands 638bp, driven by sharp Gross Margin expansion
On the Operating front, the company delivered a sharp Margin expansion of 638bp
yoy to 24.1% (17.8%), significantly ahead of our estimates of 19.8% Operating
Margins, driving a healthy growth in EBITDA of 54.1% yoy to Rs124.7cr (Rs80.9cr).
Margins expanded largely on account of a sharp jump in Gross Margins (up
1,415bp yoy), due to a 36% yoy decline in the Purchase of traded goods to Rs52cr
(Rs81cr). Moreover, on the input cost front (excluding purchase of traded goods), the
company registered a 645bp yoy Gross Margin expansion, indicating a highly
benign input cost environment. However, a significant rise in Other expenditure (up
745bp yoy, 73% yoy in absolute terms), coupled with a rise in advertising
expenditure (up 72bp yoy), curtailed further Margin expansion.
Outlook and Valuation
We are positively surprised with the strong Earnings growth posted by Colgate
during the quarter, albeit aided by a significant decrease in the Purchase of traded
goods and lower Tax Provisioning (on account of the amalgamation of the Goa
subsidiary). Hence, we have marginally revised our estimates on the Operating front
to account for higher Gross Margins. However, we have reduced our Earnings
estimates by 1-2% to account for the higher Tax rate (as tax benefits from Baddi are
set to reduce from 100% to 30% from FY2011E).
Exhibit 2: Revision in Estimates
Old Estimate New Estimate % chg
(Rs cr) FY10E FY11E FY10E FY11E FY10E FY11E
Revenue 2,268 2,599 2,268 2,599 - -
OPM (%) 20.2 20.3 21.9 22.1 170bp 178bp
EPS 33.1 37.6 32.5 37.1 (1.7) (1.3)
During FY2010-12E, we expect Colgate India to report a CAGR of 15.1% in its Top-
line, backed by an overall volume growth of 10-11% and value growth of 3-4%
(driven by price hikes and improvement in the product-mix), new product launches
and heavy investment in building brand equity. On the Operating front, we expect
the Margins to remain stable, as the company is likely to re-invest its gains from a
benign input cost environment into higher advertising spends to combat the potential
heightened competitive intensity in the Oral care market.
At the CMP of Rs715, the stock is trading at 19.3x FY2012E EPS of Rs37.1 (a 5%
discount to its historical Earnings). Hence, we maintain an Accumulate on the stock,
with a Target Price of Rs752.
Downside risks to our estimates include: 1) Increase in the competitive intensity, and
2) a Sharp rise in raw material costs.
May 27, 2010 3
8. Colgate-Palmolive I 4QFY2010 Result Update
Research Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Colgate-Palmolive
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
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May 27, 2010 8
