MOSL: COLGATE (Buy)-In line with low expectations-recovery uncertain for now
Colgate: In line with low expectations; recovery uncertain for now
(CLGT IN, Mkt Cap USD4.1b, CMP INR1106, TP INR1340, 21% Upside, Buy)
- CLGT delivered volume growth of 7% YoY (our estimate: +5%) in 2QFY19 off a low base (1% decline in 2QFY18). Net sales grew 7.7% YoY to INR11.7b (our estimate: INR11.8b). EBITDA increased 9.5% YoY to INR3.3b (our estimate: INR3.3b). Adj. PAT grew 10.6% YoY to INR1.96b (our estimate: INR2b).
- Toothpaste market share increased marginally by 10bp QoQ (-150bp YoY) to 52.5% over Jan-Sep’18. Toothbrush market share declined 40bp QoQ (-130bp YoY) to 44.2% over the same period.
- 1HFY19 performance: Sales/EBITDA/adj. PAT grew by 7.1% (with ~5.5% toothpaste volume growth)/16.8%/15.7%. EBITDA margin expanded 230bp YoY to 27.7%. For 2HFY19, we expect sales/EBITDA to increase 5.3%/1% YoY, and adj. PAT to decline 2.6% YoY.
Valuation and view: With the base getting challenging for volumes now, we cut our forecast by ~5% for FY19/ 20. We believe FY19 is likely to be another year of sub-par EPS growth. However, a few factors are likely to work in favor of CLGT over the medium term – these include (a) its high rural market share of ~60% (which contributes over 40% of its sales), which makes it a promising play on rural recovery, provided CLGT is able to check the urban seepage, (b) Importance of India in global oral care, which demands better execution eventually and (c) its attractive valuation of 35.8x FY20E EPS – at a 15% discount to our ex-cigarette and alcohol consumer peer valuations.
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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