stocks highlights of fmcg personal care companies Colgate-Palmolive

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Colgate Palmolive India (updated - 03 Feb 2010)
Personal care products maker Colgate-Palmolive (India) posted a sales growth of 17 per cent to Rs 490 crore for the quarter ended December 2009 compared to the corresponding quarter a year ago. This was largely due to the 13 per cent surge in overall volumes, including a 15 per cent volume jump in the toothpaste category.

Net profit grew 50 per cent to Rs 116.4 crore, helped by a1,029 basis points (bps) expansion in margins and lower effective tax rate, which slipped to 13.6 per cent in the December quarter from 15.3 per cent during the year-ago period. Total tax outgo stood at Rs 6 crore as against Rs 14 crore a year ago.

The margins expanded largely on account of a significant reduction in overheads (other expenses were down 18 per cent). However, spends on advertisements and promotions increased, resulting in higher selling and administrative expenses, which rose 59 per cent to Rs 75.3 crore from the yearago period.

The toothbrush category accounted for 39.5 per cent market share (JanuaryDecember 2009) while the market share of its toothpowder products touched 48.4 per cent.

Colgate-Palmolive recently acquired the remaining 25 per cent stake in professional oral care products for Rs 2.4 crore. It already had a 75 per cent holding in Goa-based toothpaste manufacturing company.

During FY2010E-12E, analysts expect the company to report a compound annual growth rate (CAGR) of 15 per cent in the topline, backed by an overall volume growth of 10-11 per cent and value growth of 3-4 per cent, driven by the increase in prices and improvement in productmix and product launches.

On the operating front, margins are expected to expand 50 bps, helped by a benign input cost environment and savings due to cost rationalisation, analysts suggest.

The stock currently trades at P/E multiple of 19x and EV/Ebitda multiple of 14x based on consensus FY2011 analyst estimates. It ended at Rs 713 on Tuesday, down 1.5 per cent or Rs 11 over its previous close on the BSE.
source - BS

Intense competition is expected from Hindustan Unilever, Dabur and a likely new entrant, Procter & Gamble. There are regional brands as well. According to Edelweiss Securities, “Pricing-led growth is crucial for Colgate over the next threefive years, as most incremental volume growth is coming from the low-end brand Cibaca.” Operating margins, therefore, are expected to come off the peak 27 per cent recorded in the March 2010 quarter. Also, competitive pressure will take its toll in the form of increased ad spends, which at the moment have been controlled at 1015 per cent of sales.

At the net earnings level, the Baddi plant, which accounts for half the company’s output, will stop getting tax benefits. Subsequently, the effective tax rate is likely to rise from 16 per cent to around 24 per cent. Maintaining net earnings growth of 30 per cent (recorded during 2005-2010), therefore, is going to be a challenge.
source - business standard

Colgate Palmolive India (updated - 16 June 2010)
After sustained growth in terms of financial performance and stock appreciation, the smiles at Colgate Palmolive are expected to fade a little. The company is likely to see its volume growth plateau. With increased competition, pricing pressure will also be unrelenting. Thereby, margins are expected to come off from the peak levels.

Over the past five years, the company’s market share has grown 450 basis points (bps) to 53.4 per cent. Incrementally, the biggest volume growth driver has been its penetration level, which increased from 46 per cent in CY04 to 59 per cent in CY09. With no major jumps at the moment, the rate is expected to be maintained. Analysts, therefore, reckon that with such a base, the company will find it difficult to sustain the volume growth it has recorded. Volumes, which grew at an average of 14 per cent in the past eight quarters, supported by Colgate Dental cream and Cibaca, are expected rise just 10-11 per cent. Moreover, since the rural segment accounts for around 40 per cent of its market, it will be difficult to pass on the price rise to customers in this pricesensitive segment.

Even Hindustan Unilever has shown renewed interest in the category by roping in Shah Rukh Khan as the brand ambassador for Pepsodent. Dabur also has strong presence in the category and caters mainly to the rural market - the next phase of growth for Colgate.

Colgate is expected to see tough times ahead due to higher input costs and advertising expenditure. Taxation costs are also expected to rise, as income tax benefits for the Baddi plant (fulfiling 50 per cent of company’s needs) decline from 100 per cent to 30 per cent. Hence, high valuations of 23 times 2011-12 estimated earnings do not match fundamentals, which makes analysts cautious about the stock.
source - business standard

Colgate Palmolive India (updated - 04 Nov 2010)
Colgate’s net sales grew 13.2 per cent year-onyear (y-o-y) to `569 crore during the September quarter. Interestingly, sales have been growing at this rate for the last three quarters - though down from an average 18 per cent in the preceding seven quarters - and have been the key trigger to the top-line growth.

Unlike previous quarters of substantial margin expansion, operating profit margins inched merely 66 basis points (bps) to 22.7 per cent, while net profit margins slipped after nine quarters by 28 bps to 17.6 per cent due to higher operational costs (except advertising), depreciation and taxation.

Not tweaking prices despite cost inflation helped Colgate improve market share in toothpaste (89 per cent of sales) by 130 bps y-o-y to 53.3 per cent during the first half of the current financial year, while its share of the toothbrush segment (10.9 per cent) rose 170 bps to 40.5 per cent.

However, further improvement in market share looks difficult due to the entry of Procter and Gamble with globally recognised brands such as Crest and Oral B.