 Net revenues at Rs 10.8bn, up 2.8% yoy on an adjusted basis, below our estimates of Rs 11.2bn. Colgate has taken price cuts of 8-9% to pass on the benefit of reduced GST rates. Volumes declined by 0.9% v/s our estimate of 3% growth

 This is the fifth consecutive quarter where Colgate saw a decline in its toothpaste market share which stood at 54%, down 170bps yoy and 30bps qoq. Colgate ended Q2’18 with market share at 45.5% for toothbrush category, down 90bps yoy and up 50bps qoq

 EBIDTA at Rs 2.9bn, grew 10.2% yoy. Gross margin expanded to 63.2%, up 50bps, and EBITDA margins improved 180bps yoy to 27.2% aided by lower ad spends which declined 7% yoy to (11.1% of sales, down 110bps yoy).

 We change our volume estimate and build-in a lower ad-spend, however these changes have a marginal impact on our earnings estimate and we introduce FY20E. Sustained decline in market share in toothpaste remain a concern. Revival in volume growth a key monitorable. Stock trades at 38x FY19E and 33x F20E, we downgrade our rating to HOLD with a price target of Rs1,108 (35x FY20E)

Subdued volumes; EBITDA margins remain healthy

Colgate’s Q2FY18 revenues were marginally below our estimates Key highlights 1) Net revenues (adjusted for GST related accounting) at Rs 10.8bn, grew 2.8% yoy; 2) EBITDA grew 10.2% yoy to Rs 2.9bn, Gross margins inched up by 50bps yoy to 63.2%; EBITDA margins expanded by 170bps yoy to 27.2% led by lower ad spends which declined 7% yoy (11.1% of sales, down 110bps yoy). 3) Consequently APAT grew by 7% yoy to Rs 1.8bn. Wholesale channel demand was muted at the start of quarter but has witnessed some recovery and expected to improve in the coming quarters.

New product launches to counter declining market share

For the fifth consecutive quarter Colgate has seen a decline in its toothpaste market share which stood at 54%, down 170bps yoy and 30bps qoq. Colgate ended Q2’18 with market share at 45.5% for toothbrush category, down 90bps yoy and up 50bps qoq. Further expanding its Natural portfolio basket company has launched Colgate Swarna Vedshakti (premium to Cibaca Vedshakti) in the state of Maharashtra and South Indian states of TN, Kerala, Karnataka & AP. The company launched Neo toothbrush.

Market share loss a concern; Downgrade to HOLD

We change our volume estimate and build-in a lower ad-spend, however these changes have a marginal impact on our earnings estimate and we introduce FY20E. Sustained decline in market share in toothpaste remains a concern. Revival in volume growth a key monitorable. Stock trades at 38x FY19E and 33x F20E, we downgrade our rating to HOLD with a price target of Rs1108 (35x FY20E).

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