Colgate-Palmolive India?s (Colgate) first quarter FY11 revenues jumped 13% YoY. We note that results are not strictly comparable due to amalgamation of professional oral care in early FY10. Its toothpaste marketshare (volume) went up 160 bps YoY to 53.3% and for toothbrush, it jumped 320 bps to 41.2%, while for toothpowder, it fell 60 bps to 48.4% for January-May 2010. The company posted a volume growth of 13% YoY led by steady 14% growth in the toothpaste category. Toothbrush volumes grew 19% YoY.
While the company?s Ebitda rose 32.2% YoY to Rs 139 crore, Ebitda margin improved 380 bps YoY to 26.3%, largely driven by 660 bps fell in raw material costs. The company managed raw material costs efficiently. Colgate?s ad spends during the quarter too were controlled and rose just 60 bps YoY to 13.1% of sales.
Although Q1FY11 results are not strictly comparable, they were good. Colgate?s brand equity and distribution remains a huge advantage. The company has managed to maintain a revenue growth rate of 13% YoY, same as in Q4FY10. Tax rates are expected to rise 100?200 bps, going ahead. P&G is likely to enter the oral care market in H2FY11. Colgate is trading at 21.7x FY12E EPS, which is reasonable. We maintain our Hold recommendation on the stock. Colgate?s volume growth remained robust and was not impacted by increase in competition.
Investment theme: The company?s leadership position in oral care has been strengthened by its continued marketshare gains. Higher competition will induce Colgate to increase its brand spends, which could cap its margins. Also, fiscal tax benefits from its Baddi unit have come off in FY11, leading to a higher tax rate. Recent run-up in its share price makes Colgate?s valuation reasonable with the upside capped.