Colgate-Palmolive's Q4FY18 results (Underperformer) - Declining market share trend continues
Q4FY18 result highlights
- Net sales increased by 5% yoy to Rs10.8bn (est: Rs11.2bn), EBITDA increased by 26% yoy to Rs3bn (est: Rs2.7bn), reported PAT was up 32.4% yoy to Rs1.9bn. Adjusting PAT increased by 25% yoy to Rs1.78bn (est: Rs1.6bn).
- Overall volumes increased by 4% yoy as compared to industry volume growth which was 5.7% for the quarter.
- Gross margins improved by 290bps yoy to 65.4%. Staff cost declined by 1% yoy, other expenses increased by 2% yoy and advertising expense was flat on yoy basis (down 80bps yoy as a % to sales to 13.2%). Resultant EBITDA margins increased by 460bps yoy to 27.7%.
- Depreciation increased by 18.6% yoy, other income (incl other op income) was up 6% yoy. Adjusting for tax reversal (Rs177.9m) and exceptional loss of Rs 116.5m (severance expense with respect to organisation structure changes), PAT increased by 25% yoy to Rs1.78bn.
Key positives: Expansion in gross & EBITDA margins
Key negatives: High competitive intensity. Moderation in market share.
Impact on financials: Factoring higher gross margins we have increased our FY19/20E estimates by 2% each.
Valuation & view
Colgate continues to report healthy improvement in operating margins; however, and more importantly, volume growth (2.4% in FY18) continues to lag the industry (~7% for FY18) resulting in continued market share loss (450bp from peak and 220bp in CY17). Our concerns on lower than peers volume growth, under investment to maintain competitiveness and lack of category diversification remain going into FY19 as well. Valuations at 44x/38x FY19/20E are expensive given relatively weaker earnings growth trajectory (13% EPS CAGR over FY18-20E) compared to peers. Maintain Underperformer.
Colgate Palmolive (India) Limited is engaged in the personal care and oral care business. The Company offers various personal care products, such as soaps, cosmetics and toilet preparations. The Company's oral care category of products includes toothpastes, toothbrushes, toothpowder, whitening products and mouthwash. In the toothpaste category, the Company offers products, including Colgate Total Charcoal Deep Clean Toothpaste, Colgate Active Salt Neem Toothpaste and Colgate Sensitive Pro-Relief (CSPR) Enamel Repair Toothpaste. In the toothbrush category, the Company offers the Colgate 360 degree Toothbrush range, including 360 degree Charcoal Gold, 360 degree Whole Mouth Clean, 360 degree Visible White and 360 degree Floss-Tip, and Colgate ZigZag Black Toothbrush. In the Personal Care category, the Company offers Palmolive's Foaming Hand Wash range in approximately two variants.
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