Colgate Palmolive
Institutional Equity Research
FMCG | India
3QFY15 Result Update
Colgate Palmolive (India)
Steady ship
Colgate reported ~5% yoy growth in volumes for its toothpaste category, aiding
consolidated revenue growth of ~12% yoy. The earnings growth of ~16% yoy was
primarily aided by trickle down benefit of margin expansion. Post the results, we
have undertaken minor tweaking of our FY15E estimates, keeping FY16E and
FY17E unchanged. Our model factors high advertisement and promotional
spends in anticipation of resurgence in disruptive competition as P&G re-launches
Oral-B toothpaste and Colgate focuses to improve market share. Nonetheless, we
continue to remain positive on Colgate’s leadership in oral care category and
strong innovation led consistent product launches (in 9MFY15, Colgate has
launched 3 new toothpaste brands, one new toothbrush brand and one new
mouthwash brand). However, business positives are priced in and hence, we
maintain our Hold recommendation on Colgate with Target Price of Rs1,942.
Revenue growth in-line with estimates
HOLD
CMP* (Rs)
1,913
Target Price (Rs)
1,942
Report Type
Upside/ (Downside) (%)
2
Bloomberg Ticker
CLGT :IN
Market Cap. (Rs mn)
260,134
Free Float (%)
49
Shares O/S (mn)
136
Shareholding Pattern (%)
Dec’14
Sep’14
Promoter
51.0
51.0
FII
20.5
18.6
DII
Colgate reported a revenue growth of ~12% yoy, aided by 5% yoy growth in
toothpaste volumes. Volume market share for toothpaste was retained at 56.7%
sequentially (an increase of 80bp yoy), aided by traction in Colgate Dental, Active
Salt, Max Fresh and Colgate Total. Toothbrush too maintained its market share at
42.4% sequentially (an increase of 80bp yoy), aided by new launch Charcoal
Black toothbrush (brand activation in 3QFY15).
Others
7.9
22.6
FY15E
FY16E
FY17E
40,194
45,807
52,679
EBITDA
8,249
9,798
11,542
Gross margin expansion aids OPM
Net Profit
5,631
6,770
8,003
The company reported OPM expansion of 265bp yoy, aided by gross margin
expansion of 228bp yoy and lower advertisement spends on high base (down
257bp yoy). Higher staff cost and other expenses, up by 70bp yoy and 151bp yoy
respectively restricted further OPM expansion.
EPS (Rs)
41.4
49.8
58.8
DPS (Rs)
31.0
36.0
42.0
FY15E
FY16E
FY17E
P/E (x)
46.2
38.4
32.5
P/B (x)
38.8
33.6
28.7
EV/EBITDA
31.2
26.3
22.3
RoE (%)
88.7
93.8
95.3
1.6
1.9
2.2
Risks to the view


Raw material inflation holds a downside risk to our estimates
Higher than anticipated competitive intensity will impact our estimates
January 23, 2015
1 Year Stock Price Performance
160%
150%
140%
130%
120%
110%
100%
90%
Colpal
Jan-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
CNX NIFTY
Aug-14
Jun-14
Apr-14
80%
May-14
Post 3QFY15 results, we have maintained our estimates for revenue as well as
margins for the company. For FY15E our earnings estimates have been revised
downwards by 1.4%, however, we maintain estimates for FY16E and FY17E. Our
numbers factor high advertisement and promotional spends in anticipation of
resurgence in disruptive competitive intensity, given Colgate’s sharp focus to grow
its market share and P&G’s re-launch of Oral-B toothpaste. We continue to
ascertain our positive stance on Colgate’s leadership in oral care category and
strong innovation led consistent product launches (in 9MFY15, Colgate has
launched 3 new toothpaste brands, one new toothbrush brand and one new
mouthwash brand). However, business positives are priced in and hence, we
maintain our HOLD recommendation on Colgate with Target Price of Rs1,942.
Mar-14
Outlook and Valuation
Divi. Yield (%)
Jan-14
While revenue and margins were largely as per expectations, the earnings growth
of 16% yoy missed our numbers, primarily owing to low other income and 87bp
higher tax rate from our estimates. Colgate reported 68% yoy growth in
depreciation expense, ~41% yoy decline in other income (on high base) and
~29% tax rate.
Sales
Feb-14
Margin expansion aids earnings growth
Rs (mn)
6.2
22.3
CNX FMCG
Note:* CMP as on January 23, 2015
Analyst: Chitrangda Kapur
Contact: +91-9375874235
Email: [email protected]
P a g e |1
Institutional Equity Research
Colgate Palmolive
FMCG | India
3QFY15 Result Update
Exhibit 1: Quarterly Performance
3QFY15
3QFY14
%yoy
2QFY15
% qoq
9MFY15
9MFY14
% yoy
Net Sales
9,960.1
8,911.1
11.8
10,005.2
(0.5)
29,534.3
26,515.3
11.4
Consumption of RM
3,637.3
3,457.5
5.2
3,729.8
(2.5)
10,939.4
10,361.3
Report
36.5
38.8
(Rs mn)
(% of sales)
Staff Cost
661.1
529.5
(% of sales)
6.6
5.9
Ad-expense
1,782.1
1,823.1
17.9
20.5
1,933.6
1,595.7
(% of sales)
Other expenses
37.3
24.9
37.0
39.1
1,925.9
1,684.0
6.5
6.4
(11.3)
5,597.6
4,683.9
19.0
17.7
12.5
5,323.7
5,164.7
(2.9)
680.9
6.8
(2.2)
2,010.0
21.2
1,719.4
20.1
14.4
19.5
3.1
19.4
17.9
18.0
19.5
Total Expenditure
8,014.1
7,405.8
8.2
8,140.1
(1.5)
23,786.6
21,893.9
8.6
Operating profit
1,946.0
1,505.3
29.3
1,865.1
4.3
5,747.7
4,621.4
24.4
(% of sales)
OPM (%)
Depreciation
EBIT
19.5
16.9
19.5
17.4
202.8
120.5
68.3
177.3
14.4
545.6
354.5
53.9
1,743.2
1,384.8
25.9
1,687.8
3.3
5,202.1
4,266.9
21.9
-
-
-
-
96.6
162.4
(40.5)
99.2
(2.6)
260.3
463.8
(43.9)
1,839.8
1,547.2
18.9
1,787.0
3.0
5,462.4
4,730.7
15.5
531.2
417.8
27.1
491.2
8.1
1,508.9
1,360.3
10.9
27.6
28.8
15.9
1,295.8
1.0
3,953.5
3,370.4
-
705.3
3,953.5
4,075.7
13.4
15.4
29.1
24.8
Interest
Other income
PBT
Tax
Tax Rate (%)
PAT (recurring)
28.9
27.0
1,308.6
1,129.4
-
(1.1)
1,308.6
1,128.3
13.1
12.7
9.6
8.3
Ext. Inc/(exp.)
PAT (reported)
17.2
5.6
Type
PAT Margin (%)
FDEPS (Rs)
18.6
-
27.5
-
16.0
1.0
1,295.8
13.0
15.9
1.0
9.5
17.3
(3.0)
17.3
Source: Company, RSec Research
Exhibit 2: Revenue trend
20
10,000
15
5,000
10
(%)
(Rs mn)
15,000
Top-line (LHS)
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
5
3QFY13
-
yoy growth (RHS)
Source: Company, RSec Research
January 23, 2015
P a g e |2
Institutional Equity Research
Colgate Palmolive
FMCG | India
3QFY15 Result Update
Exhibit 3: Margins trend
70
61.2
61.3
61.8
61.2
59.8
62.7
62.7
60.5
63.5
60
Report Type
9.9
11.8
20
20.2
18.6
19.5
18.9
20.1
17.9
10.7
1QFY14
3QFY13
-
20.5
20.5
12.7
4QFY13
10
21.8
16.9
16.2
3QFY15
19.2
2QFY15
20.3
OPM
4QFY14
19.1
3QFY14
30
1QFY15
40
2QFY14
(%)
50
Gross margin
A&P spends
Source: Company, RSec Research
Exhibit 4: Earnings growth trend
1,500
40
20
1,100
900
( %)
(Rs mn)
1,300
(20)
700
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
(40)
3QFY13
500
PAT recurring (LHS)
Source: Company, RSec Research
January 23, 2015
P a g e |3
Institutional Equity Research
Colgate Palmolive
FMCG | India
3QFY15 Result Update
Profit & Loss Statement
Y/E March (Rs mn)
Gross sales
Less: Excise duty
Net Sales
Total operating income
% chg
Total Expenditure
EBITDA
% chg
(% of Net Sales)
Depre. & Amortization
EBIT
(% of Net Sales)
Interest
Other Income
Share in profit of Asso.
PBT
% chg
Tax
FY14
37,913
2,125
35,788
35,788
FY15E
42,669
2,475
40,194
40,194
FY16E
48,731
2,924
45,807
45,807
FY17E
56,041
3,362
52,679
52,679
13.1
12.3
14.0
15.0
29,148
6,640
31,945
8,249
36,008
9,798
41,137
11,542
1.1
18.6
24.2
20.5
18.8
21.4
17.8
21.9
508
6,133
762
7,487
722
9,077
798
10,744
17.1
18.6
19.8
20.4
503
6,636
334
7,821
458
9,535
527
11,271
0.1
17.9
21.9
18.2
1,881
2,190
2,765
3,269
28.3
28.0
29.0
29.0
4,755
(644)
5,399
5,631
5,631
6,770
6,770
8,003
8,003
8.7
15.1
4.3
14.0
20.2
14.8
18.2
15.2
FDEPS (Rs)
35.0
41.4
49.8
58.8
% chg
(4.3)
18.4
20.2
18.2
FY14
FY15E
FY16E
FY17E
Equity Share Capital
136
136
136
136
Reserves & Surplus
5,863
6,561
7,603
8,923
Shareholders’ Funds
5,999
6,697
7,739
9,059
Minority Interest
-
-
-
-
Total Loans
-
-
-
-
Deferred Tax Liability
(178)
(178)
(178)
(178)
Total Liabilities
5,821
6,520
7,561
8,881
Gross Block
9,519
11,998
13,881
15,494
Less: Acc. Depreciation
4,368
5,130
5,852
6,650
Net Block
5,151
6,868
8,029
8,844
Capital Work-in-Progress
1,415
1,200
1,388
1,549
Goodwill
408
408
408
408
Investments
371
371
371
371
7,364
7,462
7,854
9,261
Cash
2,870
2,274
1,904
2,418
Loans & Advances
1,690
2,010
2,290
2,634
Other
2,805
3,178
3,660
4,209
8,889
9,790
10,490
11,553
(1,525)
(2,328)
(2,636)
(2,292)
-
-
-
5,821
6,520
Tax rate (%)
PAT (recurring)
Ext. Exp./ (Income)
Less: Minority Interest
PAT (reported)
% chg
(% of Net Sales)
Report Type
Balance Sheet
Y/E March (Rs mn)
SOURCES OF FUNDS
APPLICATION OF FUNDS
Current Assets
Current liabilities
Net Current Assets
Misc. Exp. Not written off
Total Assets
January 23, 2015
7,561
8,881
P a g e |4
Institutional Equity Research
Colgate Palmolive
FMCG | India
3QFY15 Result Update
Cash Flow Statement
Y/E March (Rs mn)
FY14
FY15E
FY16E
FY17E
Profit before tax
7,280
7,821
9,535
11,271
508
762
722
798
Depreciation
Change in Working Capital
Interest / Dividend (Net)
Direct taxes paid
Others
127
186
(171)
79
(358)
(153)
(245)
(286)
(1,881)
(2,190)
(2,765)
(3,269)
332
22
109
91
Cash Flow from Operations
6,007
6,448
7,184
8,685
(Inc.)/ Dec. in Fixed Assets
(3,587)
(2,264)
(2,071)
(1,774)
(Inc.)/ Dec. in Investments
100
-
-
-
Cash Flow from Investing
(3,487)
(2,264)
(2,071)
(1,774)
Issue of Equity
-
-
-
-
Inc./(Dec.) in loans
-
-
-
-
(4,296)
(4,932)
(5,728)
(6,683)
Dividend Paid (Incl. Tax)
Interest / Dividend (Net)
358
153
245
286
Cash Flow from Financing
(3,938)
(4,780)
(5,483)
(6,397)
Inc./(Dec.) in Cash
(1,418)
(596)
(370)
514
Opening Cash balances
4,288
2,870
2,274
1,904
Closing Cash balances
2,870
2,274
1,904
2,418
Report Type
Key Ratios
Y/E March
FY14
FY15E
FY16E
FY17E
P/E (on FDEPS)
54.7
46.2
38.4
32.5
P/CEPS
44.0
40.7
34.7
29.6
P/BV
43.4
38.8
33.6
28.7
Dividend yield (%)
1.4
1.6
1.9
2.2
EV/Sales
7.2
6.4
5.6
4.9
EV/EBITDA
38.7
31.2
26.3
22.3
EV / Total Assets
44.1
39.5
34.1
29.0
EPS (fully diluted)
35.0
41.4
49.8
58.8
Cash EPS
43.4
47.0
55.1
64.7
DPS
27.0
31.0
36.0
42.0
Book Value
44.1
49.2
56.9
66.6
RoCE
116.9
121.3
128.9
130.7
RoE
99.1
88.7
93.8
95.3
Asset Turnover
4.5
3.7
3.5
3.6
Inventory / Sales (days)
23
23
24
24
6
6
6
6
80
79
73
69
(45)
(42)
(36)
(33)
Valuation Ratio (x)
Per Share Data (Rs)
Return Ratios (%)
Turnover Ratios (x)
Receivables (days)
Payables (days)
WCC (days)
January 23, 2015
P a g e |5
Institutional Equity Research
Colgate Palmolive
FMCG | India
3QFY15 Result Update
Ratings guide
Rating
BUY
HOLD / NEUTRAL
SELL
Expected absolute returns (%) over 12 months
Absolute Return over +10%
Absolute Return -10% to +10%
Absolute Return below -10%
Report Type
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January 23, 2015
P a g e |6