Re: {LONGTERMINVESTORS} Colgate....thread

[Rajesh Desai]

Colgate-Palmolive (India)   - SC

2QFY14 – Sharp decline in profitability

UNDERPERFORM, CLGT IN, CMP INR 1279.1, Price Target INR 1096.0

• Results significantly below expectations – Net sales grew 16%, but EBITDA and PAT declined 17% and 25%.
• Despite high promotions and new launches, volume growth in toothpaste was lower at 9% (11% in 1QFY14).
• Despite 140bps y/y gross margin expansion, OPM was down 640bps y/y due to a significant jump of 700bps in adspends and other expenses.
• Maintain Underperform with a PT of INR 1,096 on the back of continued margin pressure (IER cuts FY14/15E EPS by 8%/5%) and stretched valuations (forward P/E of 32x).

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CA. Rajesh Desai

[Rajesh Desai]

Colgate Palmolive (India) has dipped 4% to Rs 1,228 on BSE after reporting 24.5% year on year (yoy) decline in net profit at Rs 110 crore for the quarter ended September 2013 (Q2) due to higher advertising expenses. The personal products maker had profit of Rs 145 crore in a year ago quarter.Net sales grew 15.9% yoy at Rs 896 crore.

EBITDA or operating profit margin however, contracted by 641 bps at 15.8% on yoy basis, impacted by higher advertising expenses and higher other expenses.

The company’s advertising expenses during the reporting quarter has increased by 34% at Rs 119 crore, while other expenditure by 46% at Rs 219 crore over the previous year quarter, Colgate Palmolive said in a statement.

The higher advertising expenses is attributed to the increased competition in the tooth paste segment post the entry of P&G into the segment through the launch of Oral-B pro-health brand, says analyst at Angel Broking in a note.

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CA. Rajesh Desai