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Colgate: Robust sales and earnings surge - Views on News from Equitymaster
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Colgate: Robust sales and earnings surge
Oct 31, 2012

Colgate-Palmolive (India) Limited has announced its second quarter results for financial year 2012-13 (2QFY13) results. The company has reported a 18% YoY increase in sales and 46% YoY jump in net profits. Here is our analysis of the results.

Performance summary
  • Colgate reported a 17.5% revenue growth in 2QFY13 driven by 10% volume growth. For 1HFY13, the topline increased by 19%.
  • The company has been able to expand operating margin by 300 basis points on the back of lower staff costs and controlled other expenses. The operating margin for 1HFY13 increased by 160 basis points.
  • Backed by robust rise in both operating and other incomes coupled with lower interest incidence and flat depreciation charges, earnings surged by 45.5%. During 1HFY13, net profits were up by 31%.

Standalone financial snapshot
(Rs m) 2QFY12 2QFY13 change 1HFY12 1HFY13 Change
Total Revenue 6,744 7,924 17.5% 13,022 15,485 18.9%
Expenditure 5,452 6,166 13.1% 10,394 12,103 16.4%
Operating profit (EBDITA) 1,292 1,758 36.0% 2,628 3,382 28.7%
EBDITA margin (%) 19.2% 22.2%   20.2% 21.8%  
Other income 108 149 37.4% 247 261 5.8%
Interest 6 -   10 -  
Depreciation 106 106 0.3% 194 211 9.0%
Profit before tax 1,289 1,801 39.6% 2,671 3,432 28.5%
Extraordinary item - -   - -  
Tax 293 350 19.5% 670 807 20.6%
Profit after tax/(loss) 997 1,451 45.5% 2,001 2,625 31.2%
Net profit margin (%) 14.8% 18.3%   15.4% 17.0%  
No. of shares (m)         136  
Diluted earnings per share (Rs)*         37.4  
Price to earnings ratio (x)*         34.4  
* Trailing 12-month earnings

What has driven performance in 2QFY13?
  • Colgate's revenues increased by 17.5% in 2QFY13 led by 10% volume growth. Backed by strong volume growth of 11% in its flagship brands Colgate Dental Cream, Colgate Active Salt, Colgate Total and Colgate Max Fresh, the company further raised its toothpaste volume market share to 54.3% from 52.3% in the year-ago period. Colgate strengthened its market leadership position in the toothbrush category to 39%. In the mouthwash category the company continued its growth momentum gaining a market share of 26.8%.

    As a % of net sales 2QFY12 2QFY13 Change in basis points
    Cost of goods 39.10% 40.87% 177.01
    Staff costs 9.0% 6.9% -212.42
    Advertisement 10.7% 11.2% 50.40
    Other expenditure 22.0% 18.9% -316.95

  • Prudent price increases and cost management aided Colgate in posting a robust operating performance. While the cost of goods to sales ratio increased by 1.8%, its effect was more than offset by the cut in employee costs and controlled other expenditure. As a proportion of sales, both staff costs and other expenditure declined by 2.1% and 3.2%, respectively. Therefore the company's operating margin expanded by 3% during the quarter.

  • Earnings surged by 45.5% aided by over 30% rise in each of the operating profit and other income coupled with modest rise in tax outgo. The tax incidence during the quarter fell to 19% from 23% in the year-ago quarter.

What to expect?
At a price of Rs 1287, the stock is trading at 25 times our estimated FY15 earnings. We had given a SELL on this stock. At current valuations, the stock appears overpriced and we re-iterate a SELL on the stock.

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