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Colgate: Excise phase out, VRS mars performance - Views on News from Equitymaster

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Colgate: Excise phase out, VRS mars performance
Aug 4, 2015

Colgate-Palmolive (India) declared results for the quarter ended June 2015. The company's revenues were up by 6% YoY, while profits declined by 15% YoY. Here is our analysis of the results:

Performance summary
  • Revenues rise by 6% YoY.
  • Operating profits grow by 4% YoY; margins remain intact at 20% levels.
  • Net profits decline by 15% YoY on the back of onetime expenses (VRS scheme) of Rs 313 m during the quarter.
  • Board has recommended a bonus issue in the ratio of 1:1, subject to approval.

Financial performance summary
(Rs m) 1QFY15 1QFY16 Change
Revenues 9,569 10,102 5.6%
Expenditure 7,632 8,083 5.9%
Operating profit (EBITDA) 1,937 2,018 4.2%
EBITDA margin (%) 20.2% 20.0%  
Other income 65 88 36.0%
Depreciation 166 253 52.7%
Extraordinary items 0 -313  
Profit before tax 1,836 1,540 -16.1%
Tax 487 397 -18.4%
Profit after tax/(loss) 1,349 1,143 -15.3%
Net profit margin (%) 14.1% 11.3%  
No. of shares (m) 136.0 136.0  
Diluted earnings per share (Rs)*   41.9  
Price to earnings ratio (x)   47.4  
(*On a trailing 12-month basis)

What has driven performance in the quarter ended June 2015?
  • Colgate's net revenues grew by 6% YoY during the quarter, while the gross revenues were up by 9% YoY. The higher excise duty (due to phasing out of benefits at its Baddi unit from current year onwards) led to a slower growth in net revenues during the quarter.

  • At the operating level, profits were up by 4% YoY as margins pretty much remains intact, coming in lower by 0.2% YoY only. However, if one were to take into consideration the effect of excise duty, profits would have been higher.

  • Profit before tax was lower by 16% YoY as the company announced a VRS scheme at its Waluj unit (Aurangabad) in the quarter gone by. Adjusting for the same, the PBT level would have been flat. Further, net profits would have been lower by a fourth (not excluding extraordinary expenses) had it not been for the Rs 125 m tax reversal for prior years during the quarter.
What to expect?
At the current price of Rs 1,985, Colgate trades at a multiple of about 47.4x its trailing twelve month earnings and at about 34x our estimated FY17 EPS.

The company continues to remain the market leader in the toothpaste category with a volume share of 57.9% (volumes; up by a percent on a YoY basis) during the first half of 2015, while its share in the toothpaste category stood at about 43% for the same period.

As for our view on the stock, we are currently in the process of updating our estimates. We will come out with an update soon.

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