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Centrum Broking
Colgate-Palmolive (Sell)
CMP: ₹2,019.60
Target: ₹1,555
Colgate posted 11 per cent y-o-y sales growth on the back of about 5 per cent y-o-y volume growth in the toothpaste category with revenue at ₹1,022 crore (est: ₹1,040 crore). Operating profit was at ₹241 crore up by 23.5 per cent y-o-y (8.8 per cent above expectations) with operating margins growing by 238 bps as gross margins expanded by 317 bps while A&P spends declined by 6.9 per cent y-o-y. Adj. PAT was at ₹16.3 crore, (up about 18 per cent y-o-y) as adj. tax rate was high at 30.1 per cent while other income was low due to lower cash.
Negative toothpaste category growth rates for past 3 quarters, pressure on volumes with high competitive intensity and expiry of benefits from Baddi plant will impact financials in the near term. While Q4FY15 results were better than expectations on healthy gross margin expansion, we believe it will be difficult for the company to replicate this performance going forward. High capex for the next 3 years would result in lower dividend payout and impact return ratios and hence valuations.
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