MOSL: COLGATE (Buy)-Vols miss-expect low near-term category growth
(CLGT IN, Mkt Cap USD5.3b, CMP INR1396, TP INR1733, 24% Upside, Buy)
- While sales, EBITDA and PAT were either in line or ahead of our estimates, CLGT delivered a miss on volumes (growth of 2% YoY v/s our estimate of 5%). However, the impact of volumes at the sales level was offset to some extent by higher realizations.
- Muted volume growth and near-term concerns about low category growth drive a sharp cut in our EPS forecasts. However, we remain optimistic on the medium-term earnings prospects, given (i) new-found aggression after the recent CEO change (ad spend has grown sharply for two quarters), (ii) direct reach expansion and (iii) past track record of regaining share due to its strong moats (brand, global expertise, category focus and distribution).
Miss on volumes; higher gross margin drives EBITDA beat
- CLGT's revenue increased 4.3% YoY to INR11.5b (in line with our estimate of INR11.6b). EBITDA grew by only 0.5% YoY to INR3.2b, but was above our estimate of INR3b due to higher gross margins. PBT declined 3% YoY to INR2.7b (our estimate: INR2.6b), while adj. PAT was up 3.6% YoY to INR2b (our estimate: INR1.9b) due to a lower-than-anticipated tax rate.
- Domestic sales were up 4.1% YoY, led by 2.3% YoY volume growth (our estimate: +5%).
- For 9MFY20, sales/EBITDA/PAT grew by 4.4%/ 1.4%/ 10.2% YoY.
- Gross margin expanded by 60bp YoY to 65.7% (our estimate: 65%). Higher staff costs (+20bp YoY), ad spends (+100bp YoY) and other expenses (+40bp YoY) led to EBITDA margin contraction of 110bp YoY to 27.6% (our estimate: 25.8%). Absolute ad spends were up 13.8% YoY.
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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