Colgate Palmolive SELL. PhillipCapital (India) Pvt. Ltd. FMCG : Company Update 1 July 2013

Transcription

1 Colgate Palmolive PhillipCapital (India) Pvt. Ltd. FMCG : Company Update 1 July 213 Following are the key takeaways from Colgate India's FY213 Annual report Toothpaste and Toothbrush segment report double digit volume growth, but momentum slower than historical average: Toothpaste segment reported a double digit volume growth of 1% YoY in FY13, however the growth rate has slowed down from the 12 13% historical CAGR. Toothbrush segment reported a robust volume growth of 2% YoY which led to a recovery in the loss of market share in the Toothbrush segment. The slower growth in the toothpaste category and sluggishness in the Mouthwash category has lowered the overall company volume growth. We expect volume growth to continue to remain at ~1% YoY in FY14E and do not expect any significant uptrend in the near to medium term. Focus on improving market penetration drives significant expansion in distribution and market coverage: Colgate continues to focus on driving category market penetration specifically in rural markets. Company's total retail coverage stands at 5.14 mn outlets as of FY13. Colgate has enhanced rural distribution and store coverage by 25% YoY and 4% YoY respectively in FY13. Being the market leader in the oral care category, we expect Colgate to maintain focus on initiatives to expand category scale in India. Significant step up in product innovations: The company has stepped up its pace of product innovations, as the category witnesses heightened competitive intensity particularly in the premium category (sensitivity). The company has stated that further product innovations will be directed towards increasing market share and consumption. AdPro ratio increases marginally by 2 bps YoY, however ad to sales ratio increases sharply by 15 bps YoY: The Adpro ratio has increased marginally by 2 bps YoY to 15.9%, however the Ad to sales ratio has increased sharply by 15 bps YoY to 11.5%. The company stepped up Ad spends by 34% YoY in FY13, but has rationalised cost with cut in promotional spends by 9% YoY. For FY14, according to our recent channel checks indicate that the company has stepped up promotional spends and the rising competitive intensity including an impending foray of P&G into the toothpaste category is expected to keep Ad spends at elevated levels. We expect Adpro ratio to increase by 6 bps YoY to 16.5% in FY14E. Operating cash flow and free cash flow grow by 53% YoY, working capital gains are not expected to sustain going ahead: Operating cash flows grew by 53% YoY in FY13, 5x of the 1% CAGR reported during FY8 12. Key driver being working capital management, specifically inventory and trade payables. The quantum of working capital savings being unsustainable, we estimate cash flow growth to normalise going ahead. Maintain estimates and our SELL recommendation: We largely maintain our estimates. We value the company at 3x FY14E earnings at Rs 125. Considering the downside of 8% from current levels, we maintain our SELL recommendation on the stock. SELL CLGT IN CMP RS 1357 TARGET RS 125 ( 8%) Company Data O/S SHARES (MN) : 136 MARKET CAP (RSBN) : 182 MARKET CAP (USDBN) : 3 52 WK HI/LO (RS) : 158 / 1118 LIQUIDITY 3M (USDMN) : 2.7 FACE VALUE (RS) : 1 Share Holding Pattern, % PROMOTERS : 51. FII / NRI : 21.9 FI / MF : 5.2 NON PROMOTER CORP. HOLDINGS : 1.2 PUBLIC & OTHERS : 2.7 Price Performance, % 1mth 3mth 1yr ABS REL TO BSE Price Vs. Sensex (Rebased values) Apr 1 Feb 11 Dec 11 Oct 12 Colgate Pal BSE Sensex Source: PhillipCapital India Research Other Key Ratios Rs mn FY13 FY14E FY15E Net Sales 29,237 35,214 4,697 EBITDA 4,964 7,665 8,978 Net Profit 3,363 5,577 6,458 EPS, Rs PER, X EV/EBIDTA, x EV/Net Sales, x ROE, % Source: PhillipCapital India Research Est. Naveen Kulkarni, CFA, FRM ( ) nkulkarni@phillipcapital.in Ennette Fernandes ( ) efernandes@phillipcapital.in

2 1 July 213 / INDIA EQUITY RESEARCH / COLGATE PALMOLIVE COMPANY UPDATE Volume growth trends lower in FY13, as high pricing growth and slower consumption spends impact negatively Company Volume Growth YoY % Company Price Growth YoY % FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E Market leadership in Toothpaste segment consolidates, recovers market share loss in Toothbrush segment Toothpaste Toothbrush FY27 FY28 FY29 FY21 FY211 FY212 YTD April FY27 FY28 FY29 FY21 FY211 FY212 YTD April 213 Distribution network expansion sustains with focus on rural markets FY28 FY29 FY21 FY211 FY212 FY213 Source: Company, PhillipCapital India Research Estimates 2 of 7

3 1 July 213 / INDIA EQUITY RESEARCH / COLGATE PALMOLIVE COMPANY UPDATE Advertising spends increase sharply in FY13, however company rationalises promotional spends Advertising and Promotional Expenses Promotional Expenses Advertising Expenses FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E Operating cash flow and free cash flow register sharp growth of 53% YoY in FY13 benefitted by working capital management 7, Operating Cashflow Growth YoY %, rhs 1 6, Free Cash Flow Growth YoY %, rhs 14 6, 5, 4, 3, 2, 1, , 4, 3, 2, 1, (2) (2) FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E Significant working capital savings in FY13, do not expect benefits to sustain in the medium term 1,5 Working Capital Inflow / (Outflow) (b) 1,375 1, (5) (1,) (1,5) (135) (58) (94) FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214E FY215E Source: Company, PhillipCapital India Research Estimates 3 of 7

4 1 July 213 / INDIA EQUITY RESEARCH / COLGATE PALMOLIVE COMPANY UPDATE Financials Income Statement Y/E Mar, Rs mn FY12 FY13 FY14E FY15E Net sales 26,239 29,237 35,214 4,697 Growth, % Other income Total income 26,932 3,34 35,322 4,816 Raw material expenses 1,52 12,52 13,884 16,45 Employee expenses 2,156 2,494 2,273 2,617 Other Operating expenses 8,489 1,74 11,51 13,176 EBITDA (Core) 5,785 4,964 7,665 8,978 Growth, % 12.4 (14.2) Margin, % Depreciation EBIT 5,392 4,527 7,129 8,384 Growth, % 12.4 (14.2) Margin, % Interest paid 16 Other Non Operating Income Pre tax profit 5,883 5,26 8,33 8,938 Tax provided 1,419 1,663 2,275 2,48 Profit after tax 4,464 3,363 6,56 6,458 Net Profit 4,464 3,363 6,56 6,458 Growth, % 1.9 (24.7) Net Profit (adjusted) 4,464 3,363 5,577 6,458 Unadj. shares (m) Wtd avg shares (m) Balance Sheet Y/E Mar, Rs mn FY12 FY13 FY14E FY15E Cash & bank 3,98 4,288 4,13 4,591 Debtors ,18 Inventory 2,177 1,853 2,179 2,481 Loans & advances 1,318 1,593 1,819 2,12 Total current assets 7,466 8,546 9,51 1,281 Investments Gross fixed assets 6,132 6,735 8,235 9,135 Less: Depreciation 3,587 3,929 4,464 5,58 Add: Capital WIP 694 1, Net fixed assets 3,238 3,826 4,389 4,397 Non current assets Total assets 11,296 13,68 14,39 15,927 Current liabilities 6,942 8,171 8,948 9,693 Total current liabilities 6,942 8,171 8,948 9,693 Total liabilities 6,942 8,171 8,948 9,693 Paid up capital Reserves & surplus 4,218 4,76 5,37 6,98 Shareholders equity 4,354 4,896 5,443 6,234 Total equity & liabilities 11,295 13,67 14,39 15,926 Source: Company, PhillipCapital India Research Estimates Cash Flow Y/E Mar, Rs mn FY12 FY13 FY14E FY15E Pre tax profit 5,883 5,26 8,33 8,938 Depreciation Chg in working capital 725 1, Total tax paid 1,372 1,766 2,275 2,48 Cash flow from operating activities 4,18 5,59 6,976 7,565 Capital expenditure 999 1,25 1,98 62 Chg in investments 84 Cash flow from investing activities 1,82 1,25 1,98 62 Free cash flow 3,97 4,565 5,878 6,963 Equity raised/(repaid) Debt raised/(repaid) 1 Dividend (incl. tax) 3,952 4,426 5,296 5,666 Cash flow from financing activities 4,586 5,76 6,38 6,455 Net chg in cash 1, Valuation Ratios & Per Share Data FY12 FY13 FY14E FY15E Per Share data EPS (INR) Growth, % 1.9 (24.7) Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) (41.4) (47.7) (53.2) (54.3) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) (.1) (.1) (.1) (.1) Fixed capital/sales (x) Working capital days (35.8) (48.9) (41.5) (35.9) Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) , , ,61. Dividend cover (x) Net debt/equity (%) (71.2) (87.6) (75.4) (73.6) Valuation PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) of 7

5 1 July 213 / INDIA EQUITY RESEARCH / COLGATE PALMOLIVE COMPANY UPDATE Recommendation Chart (TP 16) Neutral (TP 1215) (TP 125) (TP 117) (TP 125) 9 7 Neutral (TP 11) 5 1/3/211 5/27/211 1/19/211 3/13/212 8/1/212 12/27/212 5/21/213 Source: PhillipCapital India Research 5 of 7

6 1 July 213 / INDIA EQUITY RESEARCH / COLGATE PALMOLIVE COMPANY UPDATE Management Vineet Bhatnagar (Managing Director) (91 22) Sajid Khalid (Head Institutional Equities) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Deepak Jain (9122) Banking, NBFCs Manish Agarwalla (9122) Sachit Motwani, FRM (9122) Consumer, Media, Telecom Naveen Kulkarni, CFA, FRM (9122) Ennette Fernandes (9122) Vivekanand Subbaraman (9122) Cement Vaibhav Agarwal (9122) Economics Anjali Verma (9122) Sales & Distribution Kinshuk Tiwari (9122) Ashvin Patil (9122) Shubhangi Agrawal (9122) Dipesh Sohani (9122) Engineering, Capital Goods Ankur Sharma (9122) Jishar Thoombath (9122) Metals Dhawal Doshi (9122) Dharmesh Shah (9122) Infrastructure & IT Services Vibhor Singhal (9122) Varun Vijayan (9122) Raheel Arathodi (9122) Oil&Gas, Agri Inputs Gauri Anand (9122) Saurabh Rathi (9122) Sunil Kamath (Sales Trader) (9122) Rajesh Ashar (Sales Trader) (9122) Retail, Real Estate Abhishek Ranganathan, CFA (9122) Neha Garg (9122) Mid caps Kapil Bagaria (9122) Raheel Arathodi (9122) Technicals & Quant Neppolian Pillai (9122) Shikha Khurana (9122) Sr. Manager Equities Support Rosie Ferns (9122) Mayur Shah (Execution) (9122) Gurudatt Uchil (Execution) (9122) Contact Information (Regional Member Companies) SINGAPORE Phillip Securities Pte Ltd 25 North Bridge Road, #6 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 15 Thailand Tel (66) Fax: (66) UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 35 The Chicago Board of Trade Building Chicago, IL 664 USA Tel (1) Fax: (1) MALAYSIA Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 545 Kuala Lumpur Tel (6) Fax (6) INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 122, Indonesia Tel (62) Fax: (62) FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance 758 Paris France Tel (33) Fax : (33) AUSTRALIA PhillipCapital Australia Level 37, 53 Collins Street Melbourne, Victoria 3, Australia Tel: (61) Fax: (61) INDIA PhillipCapital (India) Private Limited No. 1, C Block, 2 nd Floor, Modern Center, Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 411 Tel: (9122) Fax: (9122) HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 55 Yan An East Road, Ocean Tower Unit 2318 Shanghai 2 1 Tel (86) Fax: (86) UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 12 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) of 7

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