Colgate-Palmolive: Robust performance

Volume growth and margin expansion drives performance.

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 a 1,029 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 year-ago period.

The toothbrush category accounted for 39.5 per cent market share (January-December 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 product-mix 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.