Earnings review
Colgate India's earnings performance for 1QFY11 are mixed. Net sales for the quarter are about 2% below our expectation whereas net earnings are about 2% above expectations largely on account of tax provisions. Topline growth for the quarter was 13% marginally below our expectations of 15%. Net sales for the quarter were Rs 5.3bn, a growth of 13% y/y (pq 13% y/y and p4q 16% y/y). EBITDA remained strong led by savings on raw material. EBITDA for the quarter was Rs1,598mn, a growth of 30% y/y (pq 42% y/y and p4q 35% y/y). Net profit for the quarter was Rs1,219mln, a growth of 19% y/y (pq 32% y/y and p4Q 38% y/y)
Key positive and negative takeaways from earnings
Led by raw material savings ebidta margin trends have remained encouraging. For the quarter under review ebidta margin saw improvement by 400 bps y/y and 230 bps q/q . On the negative side topline growth trends have been below expectations .
Outlook
Although monsoon trends are normal, inflation still remains very high therefore we do not envisage any major change in volume and mix trends. Moderation in volume growth also implies that pricing increase will be marginal.
Valuation
Stock is currently trading at P/E multiple of 25x and EV/EBIDTA multiple of 18x on our above consensus FY11 estimates. We believe these valuations adequately refer the strong operating growth momentum of 20% for FY10-12e. Steady earnings, marketshare performance and attractive dividend yield (~4%) are some of the key reasons to assign a hold rating on the stock.
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