For the recently concluded quarter, the company declared a topline growth of 16.4% y-o-y to Rs455.6 crore (Rs391.3cr) marginally ahead of our expectation of 13.6% growth to Rs445 crore.
This growth was driven by a robust volume growth of 14.9% y-o-y, with a strong 15.2% y-o-y volume growth in the toothpaste category, and marketshare gains (improved to 52.2% during 4QFY2009 from 48.2% last year).
In terms of earnings, the company reported a strong growth of 47.3% y-o-y on a recurring basis to Rs81.9 crore (Rs55.6cr) significantly ahead of our expectations of a 23.9% growth to Rs68.9 crore.
However, on a reported basis, the company reported a growth of 38.6% y-o-y to Rs77.1 crore owing to extraordinary charge of Rs4.9 crore (on account of VRS).
The growth in bottomline was aided by sharp margin expansion, lower interest costs and 143bp reduction in Tax rate (declined due to adjustments for the full year FY2009).
On the operating front, the company delivered a sharp margin expansion of 484bp to 17.8% (12.9%) aided by 115bp jump in Gross Margins, 335bp reduction in advertising spends and 102bp fall in other expenditure.
While reduction in excise duty and judicious cost management helped the company improve its gross margins during the quarter, drop in new product launches, lower media rates and lower competitive scenario led to the company save on ad spends.
Given Colgate’s strong parentage and leadership position in the Oral Care market in India coupled with its ability to withstand competitive pressure (as witnessed in constant marketshare gains), we remain bullish on the future performance of the company.
At Rs474, the stock is trading at 17x FY2011E EPS of Rs27.9. We upgrade the stock from Neutral to ACCUMULATE with a target price of Rs530.