Inline nos, volume growth disappoints- Colgate :: HDFC Securities

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Inline nos, volume growth disappoints
Colgate’s 3QFY15 total income grew by 11.8% YoY to
~Rs 10bn. Impacted by weak macros, volume growth
continues to remain muted at ~6% (toothpaste
volumes grew by ~5% YoY). Furthermore, market
share in toothbrush category, though increased
80bps YoY, was a tad lower (by 20bps) QoQ.
However, the company continued to gain share in
the toothpaste category. EBITDA margin expanded
by 265bps YoY to 19.5% led by lower COGS and A&P.
Lower other income (-40.5% YoY) and higher
depreciation (+68.3% YoY) and tax outgo (+187bps
YoY) led to APAT growth of 15.9% YoY.
Despite P&G’s initial failure in the toothpaste
category, we expect the company to re-launch
toothpastes with much more fervour. Though we
expect P&G to gain share from the No. 2 player and
Colgate will retain its market share, current
valuations (Colgate trades at 33.6x FY17E EPS) do not
offer a significant risk-reward. In addition, rural
wages grew by merely 3.8% YoY in Nov-14, the
slowest in 10 years, thus highlighting the imminent
pressure on rural sales. Retain SELL with a TP of Rs
1,700 (30x FY17E).
Volumes remain muted; margins expand
 Total operating revenues grew ~11.8% YoY to Rs 10bn
backed by ~6% YoY volume growth.
 EBITDA margin expanded 265bps due to COGS (-
228bps) and A&P (-257bps). This was partially offset by
higher staff cost (+70bps) and other exp. (+151bps).
Market share in toothbrush category declines QoQ
 Toothpaste reported a muted volume growth (5% YoY).
However, Colgate reported a jump in market share (up
80bps YoY to 56.7% in Jan-Dec’14) in the toothpaste
category. Market share in the toothbrush category,
though increased 80bps YoY, was a tad lower (by
20bps) as compared to 2QFY15.
 The company has upped its focus on innovations which
would help the company outperform peers. Colgate
has recently launched (1) Colgate Maximum Cavity
Protection plus Sugar Acid Neutralizer (2) Visible White
Regimen and Visible White Plus Shine Toothpaste, (3)
Colgate Slim Soft Charcoal toothbrush.
Valuations and view
 Colgate is trading at 39.5/33.6x our FY16/FY17E EPS.
Retain SELL with a TP of Rs 1,700 (30x FY17E).

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010910