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Colgate: Lower input costs boosts bottomline
Jul 15, 2010

Colgate-Palmolive (India) Limited has announced its 1QFY11 results. The company has reported a 13.3% YoY and 18.7% YoY gain in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales for the company grew by 13.3% YoY during the quarter.
  • Operating (EBITDA) margins for the quarter grew by 3.8% to stand at 29% on the back of fall in raw material costs. However, higher advertisement spending, increase in staff costs and other expenditure capped operating margin expansion.
  • Net profit increased by 18.7% YoY during the quarter. This increase has been aided by higher operating income. However, increase in effective tax rate capped net profit growth.


Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 change
Net sales         4,854         5,497 13.3%
Expenditure         3,628         3,898 7.4%
Operating profit (EBDITA)         1,226         1,599 30.5%
EBDITA margin (%) 25.3% 29.1%  
Other income               86               54 -37.2%
Interest                 5                 3 -24.4%
Depreciation               56               79 41.0%
Profit before tax         1,251         1,570 25.5%
Extraordinary item                                      
Tax            223            350 57.2%
Profit after tax/(loss)         1,028         1,220 18.7%
Net profit margin (%) 21.2% 22.2%  
No. of shares (m)            136            136  
Diluted earnings per share (Rs)*             32.5  
Price to earnings ratio (x)*             26.0  
* Trailing 12-month earnings

What has driven performance in 1QFY11?
  • During the quarter, the company witnessed a volume growth of 13% YoY coming on the back of strong sales of 11% YoY in the toothpaste category. The category increased its volume market share to 53.3% from 51.7% during the previous quarter. Contribution from flagship brands like Colgate Dental Cream, Active Salt and Cibaca contributed to the increase in market share. New products like Colgate Sensitive also contributed to market share growth. Toothbrush category also saw strong sales with a volume growth of over 19%, with increase in market share from 38% in 1QFY10 to 41.2% in the current quarter. However, toothpowder continued to lag category growth, losing market share. Market share of toothpowder fell from 49% in 1QFY10 to 48.4% currently. Low penetration level, strong investments into its brands and focus on its core business has continued to benefit Colgate and this is clearly visible from the strong volume growth and increase in market share in toothpaste and toothbrush category.

    Cost break-up
    As a % of net sales 1QFY10 1QFY11
    Cost of material 42.2% 35.8%
    Staff costs 8.0% 8.1%
    Advertisement 12.0% 12.6%
    Other expenditure 12.5% 14.5%

  • Operating income grew by 31% YoY during the quarter. The main reason was fall in raw material costs as a result of the company's costs saving drive. However, advertisement expense increased as a percentage of sales on brand building activities while staff costs also increased capping operating income growth.

  • Bottom line grew by 19% YoY during the quarter aided by strong operating income growth. However, growth in net profit was capped on account of higher effective tax rate as the company exhausted some of its tax saving benefits.

What to expect?
At a price of Rs 846, the stock is trading at 25 times our estimated FY13 earnings (RPro subscribers can click here). Colgate's investment in brand building and its costs saving drive is paying off as seen from a strong volume growth and operating income growing faster than sales. We believe that the company with its dominant position in Indian oral care markets is well poised to capture industry growth. However, with new entrants on the horizon, competition is set to intensify and this may affect the company margins going forward. For these reasons we believe that growth from a 2 - 3 year horizon is already priced in the stock.

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