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Research
Colgate-Palmolive - Strong volume growth continues - Centrum
Posted On : 2012-07-24 01:01:54( TIMEZONE : IST )
Colgate-Palmolive posted strong 20.5% revenue growth in Q1FY13 on the back of 11% volume growth. Gross margins continued to be healthy at 59% while increasing competitive intensity boosted advertising spending by 32% YoY. High tax rate muted PAT growth to 17% YoY. We believe premium valuations are not sustainable and hence maintain Neutral view on the stock.
- Robust growth: Colgate posted robust 20% sales growth on the back of strong 11% YoY volume growth with revenue at Rs7361mn (up 20.5% YoY and 7.3% QoQ). With margin expansion on the back of price hikes, operating profit was at Rs1424mn (up 21.5% YoY but down 7% QoQ). PAT was up by 17% to Rs1174mn.
- Market share improves: For the 17th consecutive quarter the company posted double digit volume growth of 11% led by the toothpaste category. Even after regular price hikes volume growth continued. Market share in toothpaste was the highest in the past few years at 54%. Premiumisation of products is helping the company gain market share in the toothpaste category. In mouth wash category the recent launch of the Colgate Plax Fresh Tea continued to enhance sales. Market share in the toothbrush category was at 38.2% against 36.3% last year.
- Margin expands: Operating margins of the company expanded by 16bps YoY but was down 294bps on a sequential basis to 19.4%. Gross profit margins have remained stable at 59.3%. Advertising expenses increased by 32%YoY on the back of strong competition from players such as HUL, Dabur and GSK. Employee cost was up 25% YoY.
- Other highlights: During the quarter the company continued to launch new products across categories. In the toothbrush category it launched Colgate 360 battery toothbrush and Colgate Max Fresh Toothbrush. The company recently acquired a plot of land in Andhra Pradesh on long term lease for setting up a toothbrush manufacturing facility. Tax rate for the company was high during the quarter at 28% against 27.3% in Q1FY12 and 24.3% in Q4FY12.
- Maintain Neutral: The stock is currently trading at 29.4x FY13E and 25.6x FY14E which is ~10% above its historical average. We do not believe such premium valuations will sustain in the long run and expect competition to become aggressive. Hence we maintain Neutral rating with a target price of Rs1142 (25x FY14E).
