Stock Pick From The Personal Care Segment
1/10/2013 9:00 PM Thursday
Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.
The company recommended as the Choice Scrip for this issue is a 76-year old firm almost synonymous with the oral care segment in India.
Here Is Why:
- Colgate is a market leader in the oral care segment which enjoys a strong brand recall.
- It focuses on innovation and rising rural demand will drive its financials going ahead.
- It has shown healthy financial performance in the past, which has made it a true wealth creator.
There are very few brands in the market which are so famous that they become synonymous to the products. One such brand is Colgate, which is used interchangeably with oral care products. What goes most in favour of the company is the power of a strong brand and an excellent product. Colgate Palmolive enjoys an excellent brand recall, and has the highest market share in the oral care segment which is reflected well in its financial performance. Its zero debt status is another added advantage. These are precisely the factors which go in favour of recommending this stock to our readers once again.
Colgate was incorporated way back in 1937, which makes it a more than 76 year-old company. It operates in various segments like Oral Care, Personal Care, Home Care and Professional Oral Care, and has strong brands like Colgate Dental Cream, Colgate Active Salt and various others brands under its belt. However, Oral Care is the company’s core segment as it contributes to more than 90 per cent of its revenues. It is a market leader in toothpastes and the toothbrush segment with a market share (volume) of 54.3 per cent and 39 per cent respectively (as of September 30, 2012 ).
|LAST FIVE QUARTERS (Rs/Cr)|
|Particulars||Sep 12||Jun 12||Mar 12||Dec 11||Sep 11|
|Net Sales ||773.77 ||736.08 ||685.94 ||669.57 ||675.54 |
|Consumption of Raw Materials ||257.89 ||226.09 ||227.51 ||234.57 ||224.01 |
|Admin. And Selling Expenses ||88.92 ||83.72 ||58.32 ||107.49 ||114.29 |
|P/L Before Other Inc. , Int., Excpt. Items & Tax ||165.18 ||151.94 ||159.83 ||139.37 ||120.22 |
|Tax ||34.97 ||45.74 ||42.01 ||32.96 ||29.26 |
|Net Profit/(Loss) ||145.08 ||117.42 ||130.77 ||115.58 ||99.68 |
|Equity Share Capital ||13.6 ||13.6 ||13.6 ||13.6 ||13.6 |
The company’s brands are widely distributed and are available across 4.85 million retail outlets. Such a wide reach of distribution along with higher disposable incomes in rural areas will result into higher demand which will drive the company’s topline. It also focuses on innovation which will further its growth going ahead. In FY12, some of the major products like Colgate Sensitive Pro-Relief and variants of plax mouth wash were introduced by the company, which have been accepted quite well by consumers.
Colgate is also expanding its manufacturing facilities which will help it to support its growth momentum. It is opening up two manufacturing facilities for toothpastes and for toothbrushes in Gujarat and Andhra Pradesh respectively, which are expected to be operational in 2013.
|SHAREHOLDING PATTERN AS ON 30/9/2012|
|Promoters ||51 |
|Banks Fin. Inst. and Insurance ||4.83 |
|FII ||20.86 |
|General Public ||20.61 |
|Others ||2.7 |
Sound brand value and good fundamentals are one thing and creating value for stakeholders just another. Colgate has created immense value for its stakeholders and this is vindicated from the returns it has generated since 1978. It came up with an IPO in 1978 and if investors had purchased 250 shares costing around Rs 6250, at the current market price, they would be sitting on approximately 14080 shares (adjusted for bonus and right issues) worth Rs 2.48 crore. This means a CAGR of 28 per cent (including dividend) over the past 35 years.
For the September quarter of 2012, its topline grew by 17.5 per cent to Rs 792 crore (with a volume growth of 10 per cent) while the bottomline grew at a robust rate of 45 per cent to Rs 145 crore on a YoY basis. Stock adjustments have led to improved EBITDA margins, which were up 279 basis points to 22.18 per cent. Colgate’s EBITDA margins are one of the best in the industry.
For FY13, it has already declared two interim dividends aggregating to a total of Rs 19 per share. On the valuations front, the company is currently trading at a trailing PE multiple of 42x. Given the growth prospects and the leadership position that it enjoys, Colgate is justifiably commanding this kind of premium. We believe the company would be posting robust growth numbers going ahead, and hence, one should invest in the counter.
| BEST OF LAST ONE YEAR|
|Company Name||Reco. Price (Rs)||CMP(Rs)||Gain (%)|
|Ajanta Pharma ||171.00 ||404.00 ||136.26 |
|ING Vysya Bank ||325.00 ||566.00 ||74.15 |
|M&M Financial Services ||685.35 ||1192.00 ||73.93 |
|Colgate Palmolive (India), ||1014.00 ||1544.00 ||52.27 |
|GlaxoSmith Kline Consumer Healthcare ||2542.00 ||3858.00 ||51.77 |
|Strides Arcolab ||729.05 ||1082.00 ||48.41 |
|Asian Paints ||2985.00 ||4384.00 ||46.87 |
|Jammu & Kashmir Bank ||976.00 ||1316.00 ||34.84 |
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