RESULT UPDATE 5th February, 2018
Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 India Equity Institutional Research II Result Update - Q3FY18 II 5th February, 2018 CMP INR 1,120 MARKET DATA Target INR 1,200 SHARE PRICE PERFORMANCE Potential Upside 7.1% Shares outs (Mn) 271 EquityCap (INR Mn) 272 Mkt Cap (INR Mn) 303264 52 Wk H/L (INR) 1176/878 Volume Avg (3m K) 281 Face Value (INR) 1 Bloomberg Code MARKET INFO CLGT IN SENSEX 34757 NIFTY 10667 Market Cap (INR Mn) 303,264 KEY FINANCIALS Recommendation ACCUMULATE Sector FMCG Result highlights Colgate Palmolive India Ltd posted its Q3FY18 results which were in line with our estimates. Net revenue reported at INR 10,333.2 Mn which showed growth of 4.2% YoY and de-growth of 4.8% QoQ. With this there was increase in volumes sales by 12%. Its 9MFY18 revenue was around 32,367.6 Mn with de-growth of 3.2% YoY. During Q3FY18 EBIDTA stood at INR 2,824.2 Mn with margins at 27.3% which improved by 32 bps YoY. We saw this improvement due to higher spending on advertisement. In 9MFY18, we saw an improvement in EBIDTA margins by 393 bps with margin at 24.9% which was due to cost saving strategies. PAT after exceptional item for Q3FY18 was at INR 1,706.5 Mn with PAT margin at 16.5% which increased by 130bps YoY and 15 bps QoQ. In 9MFY18 PAT stood at INR 5,658.4 Mn with PAT margins of 17.5%. 130 100 70 Colgate SHARE HOLDING PATTERN (%) Sensex Particulars Dec 17 Sep 17 Jun 17 Promoters 51 51 51 FIIs 13.92 14.6 15.97 DIIs 12.62 11.44 10.27 Others 22.47 22.96 22.76 Total 100 100 100 Strong Volume Growth: Colgate-Palmolive India Ltd (COLPAL) reported its Q3FY18 revenue at INR 10,333.2 Mn with growth of 4.2% YoY and de-growth of 4.8% QoQ, which was as per our estimates. On comparable basis the revenue grew by 19% YoY. During the quarter COLPAL reported strong volume growth of 12% which is highest is last 7-8 quarters, this volume growth was mainly driven by strong performance by Swarna Vedshakti. During the quarter the company continues to maintain its leadership position in both the Toothpaste and Toothbrush categories with volume market share of 53.7% and 45.1% respectively. During 9MFY18, revenue stood at INR 32,367.6 Mn which de-grew by 3.2% YoY. Margins Improved due to Lower Expenses: We had anticipated that the new GST tax regime will help organized players to improve margins on back of lower Logistics and lower tax expenses; these benefits are evident in the quarter results. During Q3FY18, COLPAL maintained its profit levels and posted EBIDTA of INR 2,824.2 Mn with growth of 31.9% YoY. EBIDTA margins remained at 27.3% which improved by 574 bps YoY. PAT during Q3FY18 was at INR 1,706.5 Mn with growth of 33.5% YoY and degrowth of 3.9% QoQ. PAT margins saw improvement of 362 bps YoY and 15 bps QoQ with margins at 16.5%. EBITDA for 9MFY18 stood at INR 8,048.5 Mn which grew by 15% YoY and margins were at 24.9%, increased by 393 bps. PAT during 9MFY18 was INR 5,658.4 Mn which grew by 30.1% YoY and margins were at 17.5%, increased by 448bps YoY. Losing market share: Colgate-Palmolive India Ltd (COLPAL) still remains the market leader in both its oral category toothpaste and tooth-brush. Its volume market share for Toothpaste stood at 53.7% in Q3FY18 as compared to 54% in Q2FY18 which is an decrease in market share by 30 bps QoQ and market share for Toothbrush stood at 45.1% in Q3FY18 as compared to 45.5% in Q2FY18 which increased by 30 bps QoQ. This loss in share is mainly because of competition from other players which are gaining in market share. However, COLPAL is aggressively investing in branding to maintain its leadership which has enabled it to achieve robust volume growth of 12% during the quarter. Valuations & Views: Colgate Palmolive India Ltd has continued to be a market leader in oral care products category (like tooth paste, tooth brush, etc). We believe that it has been most trusted brand among consumers but still it is losing out on revenue and market share due to tough competitions from other players like Patanjali, etc. Its strategy remains to enter new segments and innovate new products from salt, neem, ayurvedic products etc., besides focusing on core segment. Going ahead in FY19E and FY20E, we estimate revenue growth of around 7-9%, with improvement in EBIDTA margins at around 21-22% and PAT margins to be around 13.5% in FY19E & FY20E. At CMP INR 1,120, the stock is trading at EPS of INR 29.1 for FY20E. We are upgrading our target price to INR 1,200 and recommend ACCUMULATE rating on the stock with a potential upside of 7.1%. 7.9% Revenue CAGR between FY1 and FY20E A Befitting Result Sales 39,819.4 43,491.0 45,202.0 49,388.4 54,327.2 58,945.0 EBITDA 8,232.5 9,385.3 9,448.6 10,676.5 12,015.8 12,967.9 PAT 5,600.2 5,812.9 5,774.3 6,629.0 7,406.9 7,900.1 EBITDA Margins % 20.7% 21.6% 20.9% 21.6% 22.1% 22.0% PAT Margins % 14.1% 13.4% 12.8% 13.4% 13.6% 13.4% EPS 41.2 21.4 21.2 24.4 27.2 29.1 ROE 71.8% 56.4% 45.3% 46.9% 45.4% 41.7% PE 27.2 52.4 52.7 45.9 41.1 38.5 8.0% PAT CAGR between FY16 and FY20E 2
Q3FY18 Result Snapshot 3 Exhibit 1: Quarterly Income Statement (INR Mn) Particulars Q3FY18 Q2FY18 Q3FY17 Q-o-Q Y-o-Y Net Revenue 10,333.2 10,848.8 9,912.2-4.8% 4.2% Total Expenditure 7,509.0 7,842.7 7,771.6-4.3% -3.4% Cost of Raw Materials 2,745.6 3,142.3 2,562.6-12.6% 7.1% Purchase of Finished Goods 828.2 756.5 711.6 9.5% 16.4% (Increase) / Decrease In Stocks 24.0 70.7-115.3-66.1% -120.8% Excise Duty 0.0 0.0 1,166.4 #DIV/0! -100.0% Employee Cost 750.4 823.4 652.1-8.9% 15.1% Advertisement expense 1,207.0 1,192.3 839.1 1.2% 43.8% Operating & Manufacturing Expenses 1,953.8 1,857.5 1,955.1 5.2% -0.1% EBIDTA 2,824.2 3,006.1 2,140.6-6.1% 31.9% EBITDA Margins (%) 27.3% 27.7% 21.6% -38 bps 574 bps Other Income 90.4 88.5 109.0 2.1% -17.1% Depreciation 395.7 391.7 341.7 1.0% 15.8% EBIT 2,518.9 2,702.9 1,907.9-6.8% 32.0% Interest 0.0 0.0 0.0 - - PBT 2,518.9 2,702.9 1,907.9-6.8% 32.0% Tax 812.4 927.2 629.7-12.4% 29.0% PAT after Exceptional 1,706.5 1,775.7 1,278.2-3.9% 33.5% PAT Margin (%) 16.5% 16.4% 12.9% 15 bps 362 bps EPS 6.3 6.5 4.7-3.9% 133.5% Exhibit Particulars 2: 9MFY18 Income Statement (INR Mn) 9MFY18 9MFY17 Y-o-Y Net Revenue 32,367.6 33,434.5-3.2% Total Expenditure 24,319.1 26,434.0-8.0% Cost of Raw Materials 8,836.9 8,728.7 1.2% Purchase of Finished Goods 2,301.9 2,303.1-0.1% (Increase) / Decrease In Stocks 12.4-141.2-108.8% Excise Duty 1,404.5 3,991.9-64.8% Employee Cost 2,301.0 2,121.9 8.4% Advertisement expense 3,832.8 3,674.8 4.3% Operating & Manufacturing Expenses 5,629.6 5,754.8-2.2% EBIDTA 8,048.5 7,000.5 15.0% EBITDA Margins (%) 24.9% 20.9% 393 bps Other Income 303.4 322.6-6.0% Depreciation 1,160.3 991.1 17.1% EBIT 7,191.6 6,332.0 13.6% Interest 0.0 0.0 - PBT 7,191.6 6,332.0 13.6% Tax 1,533.2 1,983.9-22.7% PAT after Exceptional 5,658.4 4,348.1 30.1% PAT Margin (%) 17.5% 13.0% 448 bps EPS 20.8 16.0 30.1%
Exhibit 3: Volume Growth (%) 4 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 12% 4% 6% 4% -3% -5% -0.9% -12% Exhibit 4: Colgate Toothpaste & Toothbrush Volume Share (%) Colgate Toothpaste & Toothbrush Volume Share (%) 49.4 33.4 52.2 53.3 52.7 54.5 56.1 56.8 57.2 55.7 55.1 54.3 54.0 53.7 38.4 38 39.8 42.3 42.8 44.5 46.2 47.4 45.0 45.5 45.1 35.9 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1FY18 Q2FY18 Q3FY18 Tooth Paste Volume share ToothBrush Volume share Exhibit 5: Colgate Toothpaste & Toothbrush Volume Growth Trajectory (%) 15.0% Volume growth trajectory 10.9% 5.7% 6.3% 4.0% 3.8% 2.1% 2.6% 1.2% 1.1% -1.0% -1.1% 3.4% 2.9% -0.9% 1.2% 0.7% 2008 2009 2010 2011 2012 2013 2014 2015 2016-2.6% -1.1% 2017 Q1FY18 Q2FY18-1.5% -0.6% -0.6% -5.5% -5.1% Tooth Paste Volume Growth % Tooth Brush Volume Growth %
Exhibit 6: Net Sales Reconciliation Statement (INR Mn) Net Sales Reconciliation Q3FY18 Q3FY17 Y-o-Y Net Sales (as reported) 10,269.7 9,816.2 4.6% Less: Excise Duty 0.0 1,166.4 - Net Revenue (as adjusted) 10,269.7 8,649.8 18.7% 5 Exhibit 7: Income Statement (INR Mn) Net Sales 39,819.4 43,491.0 45,202.0 49,388.4 54,327.2 58,945.0 EXPENDITURE : Cost of Materials Consumed 11,857.1 11,268.3 11,560.0 12,841.0 13,853.4 15,031.0 Purchase of Stock In Trade 2,983.6 3,536.7 3,147.5 3,704.1 4,074.5 4,420.9 (Increase) / Decrease In Stocks -163.5-42.5 55.8-493.9-543.3-589.4 Total RM Costs 14,677.2 14,762.5 14,763.3 16,051.2 17,384.7 18,862.4 Advertising Expense 7,142.5 4,475.5 5,117.3 5,679.7 6,247.6 6,778.7 Employee Cost 2,589.3 2,623.9 2,885.0 3,152.2 3,467.4 3,831.4 Other Expenses 6,851.2 12,243.8 12,987.8 13,828.7 15,211.6 16,504.6 Total Expenditure 31,587.0 34,105.7 35,753.4 38,711.8 42,311.3 45,977.1 EBIDTA 8,232.5 9,385.3 9,448.6 10,676.5 12,015.8 12,967.9 EBIDTA Margin % 20.7% 21.6% 20.9% 21.6% 22.1% 22.0% Depreciation 750.2 1,114.1 1,332.4 1,563.1 1,824.4 2,108.0 Operating Profit (EBIT) 7,482.3 8,271.2 8,116.2 9,113.4 10,191.4 10,859.9 Other Income 332.0 396.1 398.1 493.9 543.3 589.4 Interest 0.0 0.0 0.0 0.0 0.0 0.0 PBT (Excld Exceptional) 7,814.3 8,667.3 8,514.3 9,607.3 10,734.7 11,449.4 Exceptional Income / Expenses 0.0-313.4 0.0 0.0 0.0 0.0 Profit before Tax 7,814.3 8,353.9 8,514.3 9,607.3 10,734.7 11,449.4 Provision for Tax 2,214.1 2,541.0 2,740.0 2,978.3 3,327.7 3,549.3 Profit After Tax 5,600.2 5,812.9 5,774.3 6,629.0 7,406.9 7,900.1 PAT Margin % 14.1% 13.4% 12.8% 13.4% 13.6% 13.4% EPS 41.2 21.4 21.2 24.4 27.2 29.1
Exhibit 8: Balance Sheet (INR Mn) 6 EQUITY AND LIABILITIES Share Capital 136.0 271.9 271.9 271.9 271.9 271.9 Total Reserves 7,666.1 10,038.4 12,466.0 13,858.1 16,028.0 18,691.1 Shareholder's Funds 7,802.1 10,310.3 12,737.9 14,130.0 16,299.9 18,963.0 Deferred Tax Assets / Liabilities 0.0 96.7 274.7 274.7 274.7 274.7 Long Term Provisions 180.5 178.8 251.3 251.3 251.3 251.3 Other Long Term Liabilities 15.4 16.9 16.9 16.9 16.9 16.9 Total Non-Current Liabilities 195.9 292.4 542.9 542.9 542.9 542.9 Current Liabilities Trade Payables 5,144.1 5,519.4 6,012.1 6,191.8 6,680.0 7,247.8 Short Term Provisions 450.4 485.2 564.2 663.0 663.0 663.0 Other Current Liabilities 3,785.3 3,421.5 3,376.4 3,300.0 3,600.0 2,742.0 Total Current Liabilities 9,379.8 9,426.1 9,952.7 10,154.8 10,943.0 10,652.8 Total Liabilities 17,377.7 20,028.8 23,233.5 24,827.7 27,785.8 30,158.7 ASSETS Non-Current Assets Net Block 7,815.8 10,865.1 12,747.0 13,162.0 15,157.0 15,157.0 Non Current Investments 301.3 311.5 311.5 311.5 311.5 311.5 Long Term Loans & Advances 555.4 256.6 261.5 261.5 261.5 261.5 Other Non Current Assets 37.4 248.1 543.1 543.1 543.1 543.1 Deferred Tax Assets (Net) 361.0 596.9 814.1 814.1 814.1 814.1 Total Non-Current Assets 10,482.8 12,278.2 14,677.2 15,092.2 17,087.2 17,087.2 Current Assets Inventories 2,522.3 2,915.3 2,925.5 3,166.3 3,415.9 3,706.3 Sundry Debtors 696.4 1,015.4 1,299.0 1,217.8 1,339.6 1,453.4 Cash and Bank 2,534.0 2,886.6 2,943.0 4,361.1 4,953.5 6,371.7 Currents Investments 70.0 0.0 0.0 0.0 0.0 0.0 Short Term Loans and Advances 1,001.6 884.8 1,324.1 950.0 950.0 1,500.0 Other Current Assets 71.0 48.5 64.6 40.0 40.0 40.0 Total Current Assets 6,895.2 7,750.6 8,556.2 9,735.2 10,699.0 13,071.5 Total Assets 17,378.0 20,028.8 23,233.4 24,827.4 27,786.2 30,158.7
7 Exhibit 9: Cash flow statement (INR Mn) PBT 7,814.3 8,667.3 8,514.3 9,607.3 10,734.7 11,449.4 Add: Depreciation 750.2 1,114.1 1,332.4 1,563.1 1,824.4 2,108.0 Add: Interest 0.0 0.0 0.0 0.0 0.0 0.0 Cash flow from Operations 6,399.3 7,198.3 6,880.3 8,212.3 9,348.1 10,171.6 Cash flow from Investing Activity -2,715.9-2,366.2-3,421.6-3,210.2-3,531.3-3,811.4 Cash flow from Financing Activity -3,858.9-3,914.3-3,405.1-4,065.0-5,420.0-5,410.0 Net change in Cash (Inflow/Outflow) -175.5 605.3 53.6 937.1 396.9 950.2 Cash & Bank Balance 2,534.0 2,887.0 2,943.0 4,361.1 4,953.5 6,371.7 Exhibit 10: Ratio Analysis EPS 41.2 21.4 21.2 24.4 27.2 29.1 BV 57.4 37.9 46.8 52.0 59.9 69.7 DPS 24.9 15.0 16.0 16.0 16.0 16.0 EBITDA Margin (%) 20.7% 21.6% 20.9% 21.6% 22.1% 22.0% PAT Margin (%) 14.1% 13.4% 12.8% 13.4% 13.6% 13.4% Net Sales Growth % 11.3% 9.2% 3.9% 9.3% 10.0% 8.5% EBIDTA Growth % 24.0% 14.0% 0.7% 13.0% 12.5% 7.9% PAT Growth % 3.7% 3.8% -0.7% 14.8% 11.7% 6.7% PE (x) 27.2 52.4 52.7 45.9 41.1 38.5 Price/BV 19.5 29.5 23.9 21.6 18.7 16.1 EV/EBITDA 18.2 32.1 31.9 28.1 24.9 23.0 ROE (%) 71.8% 56.4% 45.3% 46.9% 45.4% 41.7% Debt/Equity % 0.0 0.0 0.0 0.0 0.0 0.0 Debtors Days 6.4 8.5 9.0 9.0 9.0 9.0 Inventory Days 77.6 94.4 90.0 90.0 90.0 90.0 Creditors Days 158.4 178.8 176.0 176.0 176.0 176.0
Rating Legend Date CMP (INR) TP (INR) Recommendation Our Rating Upside 5-Feb-18 1,120 1,200 ACCUMULATE 16-Oct-17 1,057 1,145 ACCUMULATE Buy More than 15% 03-Aug-17 1,080 1,145 ACCUMULATE 12-Jul-17 1,039 1,145 ACCUMULATE Accumulate 5% 15% 15-May-17 994 1,059 ACCUMULATE 10-Apr-17 1,019 1,059 HOLD Hold 0 5% 27-Jan-17 881 959 ACCUMULATE 28-Oct-16 973 1,100 ACCUMULATE Reduce -5% 0 14-Jul-16 932 1,005 ACCUMULATE Sell Less than 0% 8 CERTIFICATION: We, Vaibhav Chowdhry (B.Com, MBA), research analyst and Kunal Jagda (B.com, MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. 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