MOSL: COLGATE (Buy)-Sales and volumes in-line; high ad spends lead to EBITDA miss
​Colgate: Sales and volumes in-line; high ad spends lead to EBITDA miss
(CLGT IN, Mkt Cap USD4.3b, CMP INR994, TP INR1180, 19% Upside, Buy)
- Colgate (CLGT) posted net sales growth of 2.5% YoY (est. of +3.5%) to INR10.3b in 4QFY17. Volumes fell 2% YoY, as against est. of -1%. EBITDA rose 1.2% YoY (est. of +5%) to INR2.4b, while PAT declined 0.5% YoY to INR1.4b.
- Market shares stable: Market share in toothpaste was stable at 55.1% in FY17 (55.4% in Jan-Dec 2016). Toothbrush market share stood at 47.4%, up from 47% YoY in the Jan-Dec 2016 period.
- Gross margin (+140bp YoY to 62.6%) continued its uptrend. Staff costs were flat YoY and other expenses declined 80bp YoY. However, the impact was offset by a sharp 240bp YoY increase in ad spend, a welcome move, in our view - CLGT is the only company in the FMCG space apart from GCPL to not cut A&P in 4QFY17. EBITDA margin shrunk 20bp YoY to 23.5% in the quarter.
- FY17 performance: Sales were up 3% YoY to INR39.5b. EBITDA grew 0.7% YoY to INR9.4b, as gross margin expansion of 110bp was offset by 130bp higher ad spend to sales to 12.9%. PAT declined 5.7% YoY to INR5.8b. Net fixed assets (incl. CWIP) increased INR1.9b YoY. Negative net working capital rose 12.5% YoY as increase in creditor days offset higher receivables.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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