MOSL: COLGATE (Buy)-Volumes miss, but high rural salience to drive performance
​Colgate: Volumes miss, but high rural salience to drive performance
(CLGT IN, Mkt Cap USD4.6b, CMP INR1064, TP INR1325, 25%Upside, Buy)
- Colgate’s (CLGT) volumes declined 0.9% YoY (est. of +7%) in 2QFY18. Realization was slightly lower than expected, and thus, sales grew only 2.7% YoY to INR10.8b. EBITDA was up 9.4% YoY (est. of +17.1%) to INR3b. Adj. PAT declined 2.1% YoY to INR1.8b (est. of +10.7%). Market share in toothpaste shrunk 170bp YoY (-30bp QoQ) to 54%, while that in toothbrush contracted 110bp YoY (+50bp QoQ) to 45.5%.
- Gross margin continued its upward trajectory, expanding 50bp YoY to 63.2%. The sharp decrease in ad spends (-370bp YoY to 11% of sales) and other expenses (-90bp YoY to 17.1%) was slightly offset by a 60bp increase in staff cost to 7.6%. Thus, EBITDA margin expanded 170bp YoY to 27.7%.
- Management commentary highlights: 1) Demand has been picking up post GST implementation. 2) Wholesale channel saw a gradual recovery in 2QFY18.
- Balance sheet comments: 1) Negative net working capital improved further by INR620m YoY and by INR671m over March 2017, led by a reduction in absolute inventory and an increase in other payables, more than offsetting higher debtors. 2) Other assets increased, particularly in current loans and advances and other current assets, which meant that there was only marginal accretion in cash YoY at the end of September 2017.
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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