Colgate Palmolive, 1Q FY 2014

7/27/2019 Colgate Palmolive, 1Q FY 2014

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Please refer to important disclosures at the end of this report 1

Quarterly results

(` cr) 1QFY14 1QFY13 % yoy 4QFY13 % qoq

Revenue 845 736 14.7 812 4.1

EBITDA 150 142 5.5 149 1.0

OPM (%) 17.8 19.4 (157)bp 18.3 (54)bp

Adjusted PAT 115 117 (2.4) 123 (7.0)

Source: Company, Angel Research

For 1QFY2014, Colgate Palmolive India (Colgate) posted a 2.4% yoy de-growth

in its bottom-line to ` 115cr, due to a 157bp yoy contraction in OPM on account

of steep yoy increase in advertisement and other expenditure.

Key highlights: For 1QFY2014 Colgate’s results were below our expectations.

The top-line rose by 14.7% yoy to ` 845cr, which was below our estimate. The

company’s volume growth stood at 9%, aided by an 11% yoy growth in the

toothpaste category. The company enhanced its leadership in the toothpaste

category and achieved a volume market share of 55.9% for January – June

2013 (54.7% in January – June 2012). The OPM stood at 17.8%, down 157bp

on a yoy basis, impacted by higher other expenses. The Net profit before

exceptional items stood at ` 115cr and was below estimate.

Outlook and valuation: We expect Colgate to report a 15.7% CAGR in its

top-line and ~15.0.0% CAGR in its earnings over FY2013-15E. At the

current market price, the stock is trading at 26.8x FY2015E EPS. We maintain

our Neutral rating on the stock.

Key financials

Y/E March (` cr) FY2012 FY2013 FY2014E FY2015E

Net sales 2,624 3,084 3,588 4,130

% chg 14.8 17.5 16.4 15.1

Net profit (Adj.) 446 497 560 658

% chg 10.9 11.3 12.7 17.4

EBITDA margin (%) 19.4 18.7 18.9 19.4

EPS (`) 32.8 36.5 41.2 48.4

P/E (x) 39.5 35.5 31.5 26.8

P/BV (x) 40.5 36.0 28.0 21.7

RoE (%) 109.0 107.5 100.0 91.0

RoCE (%) 110.8 111.5 109.2 100.6

EV/Sales (x) 6.6 5.6 4.8 4.1

EV/EBITDA (x) 34.0 29.7 25.1 21.1

Source: Company, Angel Research; Note: CMP as of August 8, 2013

NEUTRALCMP ` 1,297

Target Price -

Investment Period -

Stock Info

Sector

(438)

Bloomberg Code CLGT@IN

Shareholding Pattern (%)

Promoters 51.0

MF / Banks / Indian Fls 5.2

FII / NRIs / OCBs 21.9

Indian Public / Others 21.9

Abs. (%) 3m 1yr 3yr

Sensex 6.8 22.6 19.5

CLGT 16.3 22.0 102.3

Reuters Code CLGT.BO

BSE Sensex 20,148

Nifty 6,104

Avg. Daily Volume 18,581

Face Value ( ` ) 1

Beta 0.3

52 Week High / Low 1580/1098

Net Debt ( ` cr)

FMCG

Market Cap ( ` cr) 20,172

V Srinivasan

022 – 3935 7800 Ext: 6831

[email protected]

Colgate Palmolive

Performance Highlights

1QFY2014 Result Update | FMCG

August 10, 2013



Colgate | 1QFY2014 Result Update

August 10, 2013 2

Exhibit 1: Quarterly performance

Y/E March (` cr) 1QFY14 1QFY13 % yoy 4QFY13 % qoq FY2013 FY2012 % chg

Net Sales 845 736 14.7 812 4.1 3,084 2,624 17.5

Consumption of RM 328 300 9.5 322 1.9 1,250 1,050 19.0(% of Sales) 38.9 40.7 39.7 (2.1) 40.5 40.0

Staff Costs 62 62 (0.7) 70 (10.9) 249 216 15.7

(% of Sales) 7.3 8.5 8.6 (14.4) 8.1 8.2

Advertising 101 84 21.1 82 23.5 355 263 34.8

(% of Sales) 12.0 11.4 10.1 18.7 11.5 10.0

Other Expenses 203 148 37.2 189 7.3 653 586 11.4

(% of Sales) 24.0 20.1 23.3 3.1 21.2 22.3

Total Expenditure 694 594 17.0 663 4.8 2,507 2,115 18.6

Operating Profit 150 142 5.5 149 1.0 577 509 13.3

OPM 17.8 19.4 18.3 18.7 19.4

Interest 0 0 0 0 2

Depreciation 12 11 11.7 11 4.2 44 39 11.2

Other Income 32 31 3.1 32 0.5 130 120 8.0

Recurring PBT 171 163 4.6 169 0.7 663 588 12.7

Extr. Income/(Expense) 71 0 0 0 0

PBT (incl. Extr. Items) 241 163 47.9 169 42.4 663 588 12.7

(% of Sales) 28.6 22.2 20.9 21.5 22.4

Provision for Taxation 56 46 22.6 46 166 142 17.2

(% of PBT) 23.2 28.0 27.3 (14.9) 25.1 24.1

Reported PAT 185 117 57.7 123 50.3 497 446 11.3

PATM 22 16 15 16 17

Equity shares (cr) 14 14 14 14 14

EPS (`) 8.4 8.6 (2.4) 9.1 (7.0) 36.5 32.8 11.3

Adjusted PAT 115 117 (2.4) 123 (7.0) 497 446 11.3


Exhibit 2: 1QFY2014 Actual vs Angel estimates

(` cr) Actual Angel Est. % Diff.

Revenue 845 868 (2.7)

EBITDA 150 169 (11.3)

OPM (%) 17.8 19.5 (172)PAT 115 137 (16.1)





August 10, 2013 3

Top-line growth at 14.7% yoy

For 1QFY2014 Colgate’s results were below expectations. Its top-line rose by

14.7% yoy to ` 845cr, which is below our estimates. The company’s volume growth

stood at 9%, aided by an 11% yoy growth in the tooth paste category. The

company enhanced its leadership in the toothpaste category and achieved a

volume market share of 55.9% for January – June 2013 (54.7% in January – June

2012).

The growth in market share was aided by healthy growth in flagship brands such

as Colgate Dental Cream, Active salt, MaxFresh and Colgate Sensitive. The

company’s volume market share in the tooth brush category too increased to

41.4% (38.7% in January to June 2012) during January-June 2013.

Colgate continues to focus on innovation to drive its growth. The company has

recently launched Colgate Visible White tooth paste. It is the first of its kind in oralcare product category in India that offers white teeth in just one week and is aimed

at creating and growing the whitening segment in the tooth paste category.

Colgate Visible White has whitening accelerators, high cleaning silica and

polyphosphates which remove and prevent tooth surface stains for visibly whiter

teeth.

Exhibit 3: Top-line growth at 14.7% yoy

Source: Company, Angel research

Exhibit 4: Volume market share (YTD) higher on yoy basis

Source: Company, Angel research

OPM down 157bp yoy

The company’s OPM stood at 17.8%, down 157bp on a yoy basis, impacted by

higher other expenses. The Net profit before exceptional items stood at ` 115cr and

was below our estimate. During the quarter, the company recorded exceptional

gains of ` 55cr with respect to slump sale of Global, a shared service organization

to Colgate Business services Pvt Ltd, which is a 100% subsidiary of its promoter

Colgate-Palmolive USA.

6 1 1

6 5 7

6 7 0

6 8 6

7 3 6

7 7 4

7 6 3

8 1 2

8 4 5

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5.0

10.0

15.0

20.0

25.0

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100

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1 Q 1 2

2 Q 1 2

3 Q 1 2

4 Q 1 2

1 Q 1 3

2 Q 1 3

3 Q 1 3

4 Q 1 3

1 Q 1 4

( y o y % )

( `

c r )

Top-line (LHS) yoygrowth (RHS)

54.7 54.3 54.5 55.4 55.9

25

30

35

40

45

50

55

60

Toothpaste

( % )

1Q13 2Q13 3QFY13 4Q13 1Q14




August 10, 2013 4

Exhibit 5: OPM down 157bp yoy


Exhibit 6: Net Profit down by 2.4% yoy


Investment rationale Company continues to maintain market leadership: Colgate has continued to

maintain its market leadership in all categories of oral care such as tooth

paste, tooth brush and mouth wash despite intensive competitive pressure. It in

fact has gained market share from its rivals over the past one year.

Strong innovation capabilities: Colgate has continuously demonstrated its

innovation capability through launch of new products. It has launched

premium products such as Colgate Max Fresh toothbrush and Colgate 360

Battery toothbrush to counter aggressive product launches and higher ad

spend by competitors.

Outlook and valuation

We expect Colgate to report a 15.7% CAGR in its top-line and ~15.0.0% CAGR in

its earnings over FY2013-15E. At the current market price, the stock is trading at

26.8x FY2015E EPS. We maintain our Neutral rating on the stock.

19.1 17.1 19.022.3

19.4 20.316.9 18.3 17.8

59.6 59.9 60.4 59.9 59.3 58.2 60.1 60.3 61.1

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1 Q 1 2

2 Q 1 2

3 Q 1 2

4 Q 1 2

1 Q 1 3

2 Q 1 3

3 Q 1 3

4 Q 1 3

1 Q 1 4

( % )

OPM Gross margin

1 0 0

9 9 1

1 6

1 3 1

1 1 7 1

4 5

1 1 1

1 2 3

1 1 5

(40.0)

(20.0)

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20.0

40.0

60.0

80.0

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30

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170

1 Q 1 2

2 Q 1 2

3 Q 1 2

4 Q 1 2

1 Q 1 3

2 Q 1 3

3 Q 1 3

4 Q 1 3

1 Q 1 4

( y o y % )

( `

c r )

PAT (LHS) yoy growth (RHS)




August 10, 2013 5

Exhibit 7: Peer valuation

Company Reco Mcap CMP TP Upside P/E (x) EV/Sales (x) RoE (%) CAGR #

(` cr) (`) (`) (%) FY14E FY15E FY14E FY15E FY14E FY15E Sales EPS

Asian Paints Neutral 41,351 431 - - 31.0 26.9 3.2 2.7 35.6 32.7 15.4 17.5Britannia Neutral 8,300 694 - - 32.6 27.3 1.2 1.0 35.7 34.6 16.1 15.3

Colgate Neutral 17,644 1,297 - - 31.5 26.8 4.8 4.1 100.0 91.0 15.7 15.0

Dabur Neutral 28,064 161 - - 30.2 25.6 3.9 3.3 39.2 36.7 16.2 19.5

GCPL Neutral 29,548 868 - - 34.5 29.3 3.9 3.3 24.8 24.2 18.8 18.9

GSKCHL* Neutral 16,625 3,953 - - 32.3 26.6 4.1 3.4 34.1 33.7 17.6 19.6

HUL Neutral 129,653 600 - - 35.9 33.0 4.4 3.9 113.4 87.0 12.6 11.1

ITC Neutral 257,164 325 - - 28.9 24.4 7.1 5.9 36.1 34.9 16.2 19.2

Marico Neutral 12,853 199 - - 27.5 23.0 2.4 2.1 21.4 21.0 14.8 24.0

Nestle* Neutral 48,350 5,015 - - 40.7 33.5 5.1 4.3 56.4 50.3 14.4 14.5

TGBL Neutral 9,029 146 - - 19.3 17.6 1.1 1.0 9.3 9.5 11.0 13.2


Exhibit 8: One year forward PE

Source: Company

Company background

Colgate-Palmolive India, a 51% subsidiary of Colgate Palmolive Company, USA, is

a leading FMCG player in the Indian oral care market. The oral care segment

contributes ~96% to the company's revenue, with the personal care and household

care segment contributing the balance. The company, under the Palmolive brand

name, is also present in the personal care segment.

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5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13




August 10, 2013 6

Profit & Loss statement

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

Total operating income 1,962 2,286 2,693 3,120 3,588 4,130

% chg 15.8 16.5 17.8 15.8 15.0 15.1Total Expenditure 1,537 1,772 2,115 2,507 2,910 3,330

Cost of Materials 777 872 1,050 1,250 1,428 1,625

Advertising Exp (Incl Prom.) 299 349 412 505 603 694

Personnel 159 193 216 249 301 347

Others 302 357 437 503 578 665

EBITDA 425 515 579 613 678 800

% chg 59.7 21.0 12.4 6.0 10.7 17.9

(% of Net Sales) 21.7 22.5 21.5 19.6 18.9 19.4

Depreciation& Amortisation 38 34 39 44 49 54

EBIT 388 480 539 569 629 746

% chg 59.3 23.8 12.3 5.6 10.5 18.6

(% of Net Sales) 19.8 21.0 20.0 18.2 17.5 18.1

Interest & other Charges 2 2 2 - - -

Other Income 98 41 120 130 133 167

(% of PBT) 20.3 7.9 18.3 18.6 17.4 18.3

Share in profit of Associates - - - - - -

Recurring PBT 485 520 658 699 762 913

% chg 38.4 7.3 26.5 6.3 9.0 19.9

Prior Period & Extra. Exp./(Inc.) - - - - (55) -

PBT (reported) 485 520 658 699 817 913

Tax 62 117 142 166 202 256

(% of PBT) 12.7 22.6 21.6 23.8 26.5 28.0

PAT (reported) 423 403 516 533 560 658

ADJ. PAT 423 403 516 533 615 658

% chg 45.8 (4.9) 28.1 3.3 15.4 6.9

(% of Net Sales) 21.6 17.6 19.2 17.1 17.1 15.9

Basic EPS (`) 31.1 29.6 32.8 36.5 41.2 48.4

Fully Diluted EPS (̀ ) 31.1 29.6 32.8 36.5 41.2 48.4

% chg 43.4 (4.9) 10.9 11.3 12.7 17.4

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

previous year numbers




August 10, 2013 7

Balance Sheet


SOURCES OF FUNDS

Equity Share Capital 14 14 14 14 14 14Preference Capital - - - - - -

Reserves& Surplus 313 370 422 476 617 801

Shareholders Funds 326 384 435 490 631 814

Minority Interest - - - - - -

Total Loans 5 0 - - - -

Deferred Tax Liability (18) (17) (12) (22) (12) (12)

Long term Provisions 27 30 35 30 30

Other Long term liabilities 1 1 1 1 1

Total Liabilities 313 395 454 503 650 833

APPLICATION OF FUNDS

Gross Block 494 553 586 745 820 895

Less: Acc. Depreciation 288 325 359 402 452 505

Net Block 206 228 227 343 369 390

Capital Work-in-Progress 6 8 69 13 13 13

Goodwill 41 27 27 27 27 27

Investments 21 39 47 47 47 47

Long term loans and adv. 18 23 70 40 40

Current Assets 591 696 724 784 994 1,252

Cash 348 395 310 429 554 758

Loans & Advances 123 72 109 89 89 89

Other 120 229 305 267 351 404

Current liabilities 552 622 663 781 840 935

Net Current Assets 39 74 60 3 154 316

Mis. Exp. not written off - - - - - -

Total Assets 313 395 454 503 650 833






August 10, 2013 8

Cash Flow Statement


Profit before tax 485 520 588 663 817 913

Depreciation 38 34 39 44 49 54Change in Working Capital (23) (7) (81) 145 (42) 20

Interest / Dividend (Net) (24) (29) (40) (71) (66) (91)

Direct taxes paid 62 117 142 166 202 256

Others 70 36 8 (17) 57 27

Cash Flow from Operations 484 437 373 598 614 668

(Inc.)/ Dec. in Fixed Assets (111) (47) (95) (103) (75) (75)

(Inc.)/ Dec. in Investments 17 (18) (8) - - -

Cash Flow from Investing (93) (65) (103) (103) (75) (75)

Issue of Equity 0 - - - - -

Inc./(Dec.) in loans (0) (5) (0) - - -

Dividend Paid (Incl. Tax) 318 349 395 442 474 474

Interest / Dividend (Net) (24) (29) (40) (66) (61) (86)

Cash Flow from Financing (294) (325) (355) (376) (414) (388)

Inc./(Dec.) in Cash 96 48 (85) 119 125 204

Opening Cash balances 251 348 395 310 429 554

Closing Cash balances 348 395 310 429 554 758






August 10, 2013 9

Key Ratios

Y/E March FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

Valuation Ratio (x)

P/E (on FDEPS) 41.7 43.8 39.5 35.5 31.5 26.8P/CEPS 38.3 40.4 36.3 32.6 29.0 24.8

P/BV 54.1 45.9 40.5 36.0 28.0 21.7

Dividend yield (%) 1.5 1.7 1.9 2.2 2.3 2.3

EV/Sales 8.8 7.5 6.6 5.6 4.8 4.1

EV/EBITDA 40.6 33.5 34.0 29.7 25.1 21.1

EV / Total Assets 55.3 43.6 38.1 34.1 26.2 20.2

Per Share Data (`)EPS (Basic) 31.1 29.6 32.8 36.5 41.2 48.4

EPS (fully diluted) 31.1 29.6 32.8 36.5 41.2 48.4

Cash EPS 33.9 32.1 35.7 39.8 44.8 52.3

DPS 20.0 22.0 25.0 28.0 30.0 30.0

Book Value 24.0 28.2 32.0 36.0 46.4 59.9

Returns (%)

RoCE 150.3 135.8 110.8 111.5 109.2 100.6

Angel ROIC (Pre-tax) - - - - - -

RoE 156.1 113.4 109.0 107.5 100.0 91.0

Turnover ratios (x)

Asset Turnover (Gross Block) 4.5 4.4 4.6 4.9 4.9 4.9

Inventory / Sales (days) 21 25 30 24 24 24

Receivables (days) 2 12 12 11 11 11

Payables (days) 79 94 82 85 77 74

WC cycle (ex-cash) (days) (57) (51) (35) (50) (41) (39)






August 10, 2013 10

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Colgate Palmolive, 1Q FY 2014

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