Reduce Colgate-Palmolive (India) - Q3FY12 Result Review- PINC Research

Colgate-Palmolive (India) - Operational Performance In-line; Maintain 'REDUCE'; TP Rs937

Operational Performance In-line

Colgate-Palmolive (Colgate) reported 20% growth in net sales which was ahead of our expectation (PINCe 17%). Toothpaste category continues to show strong volume growth and clocked 15% growth during the quarter. A&P and staff cost (% of sales) declined by 533bps and 133bps respectively and helped in expanding EBITDA margins by 549bps at 21.6% (PINCe 21.3%). PBT was at Rs1,484mn v/s our expectation of Rs1,422mn. However, lower effective tax rate of 22% (PINCe 27%) led to the deviation in our expectation and actual PAT. PAT grew by 75% YoY to Rs1,159mn (PINCe Rs1,038mn).

We maintain our 'REDUCE' rating on the stock with a TP of Rs937.
- Toothpaste growth continues to be strong.
- Oerational profitability in-line.

Outlook

We believe oral care industry is set for premiumisation and better realisation growth is expected in the coming years. However, to maintain the healthy volume growth, we expect Colgate's A&P spending would continue to be high in FY13 and FY14. We expect EBITDA margin to be in the range of 22-23% during FY11-14E.

VALUATIONS AND RECOMMENDATION

We expect volume growth to sustain owing to Colgate's regular product launches, higher rural focus and continued dental awareness programmes. We retain our target multiple at 25x on 12-month forward earnings and maintain TP of Rs937. We reiterate our 'REDUCE' recommendation on the stock.

Source : Equity Bulls

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