Colgate’s Q4FY17 results were largely in line with our expectations at the revenue growth and Ebitda levels, though a higher-than-expected tax rate led to a miss at the PAT level. For Bloomberg consensus, while numbers were in line at the revenue growth level, numbers missed at the Ebidta level, leading to an 8% miss at the PAT level. A volume decline of 3% indicates a recovery in progress, albeit slower than our expectations. However, pricing action continues to be strong for the company. We believe these are a decent set of numbers — the company continues to invest behind its brands to ensure market share remains intact, and we see the market share loss to have bottomed out now.
While the near term may suggest further weakness, with the wholesale channel taking longer to recover and GST possibly resulting in de-stocking, we continue to advise to remain invested for the long term. The stock is currently trading at 33x FY19F EPS. Our Rs 1,127 target price, based on 36x one-year forward EPS of Rs 30.8, implies 13% upside.
Revenue grew 2.5% y-y to R1,030 crore for the quarter, compared with our estimate of ~3% revenue growth. Ebitda was at Rs 244 crore, an increase of 1.2%. We and consensus were building in Ebitda of Rs 249 crore and Rs 260 crore, respectively. Ebitda margin contracted by 30bps to reach 23.7% for the quarter. Our expectation was for a flattish trend. Gross margin expanded by 142bps, against our expectation of a ~40bps expansion.
PAT at Rs 143 crore was 5.4% below our estimate of Rs 151 crore. In Q4, the company saw encouraging signs of recovery from the impact of the liquidity crunch in Q3. With this recovery, sales growth moved positively in Q4 compared to the trailing quarter. Volumes were impacted by the softness in the wholesale channel. The company did not witness any restocking this quarter.
It maintained its leadership position in both toothpaste and toothbrush categories in FY17, with the volume market share in toothpaste at 55.1% and in toothbrush at 47.4%. The company has witnessed some softness in share in its super premium brands, as well as the Cibaca brand. It expects challenges while transitioning to GST, including an impact on trade pipeline inventory, and is taking all necessary steps to minimise business disruption during the transition.