Colgate’s net sales grew 1.8% y-o-y to `10.1 billion (estimate of `10.5 billion), with modest 1% volume growth (10-year low) in the toothpaste segment (below our expectations of 4.5%). We believe heightened competitive intensity and sluggish market growth is hurting toothpaste volumes. Organic sales growth was 7%, offset by phasing out of fiscal benefits in Himachal Pradesh. EBITDA grew 18.9% y-o-y to `2.3 billion (est. of `2.2 billion) and adj. PAT 7.9% to 1.4 billion (est. `1.5 billion).
Volume market share was up 60bp y-o-y in the toothpaste segment, but down 30bp q-o-q. Toothbrush volume market share was 43.8%, up 140bp y-o-y during Jan-Dec’15.
Gross margin expanded 120bp y-o-y to 64.7% (est. of 64.3%). Savings in ad spends (down 230bp y-o-y) and lower other expenses (down 30bp y-o-y) were partially offset by higher staff costs (up 50bp y-o-y), resulting in sharp EBITDA margin expansion (330bp y-o-y to 22.8%).
Thus, EBITDA grew 18.9% y-o-y to `2.3 billion (est. of `2.2 billion). We reduce our estimates 3-4% to bake in 3Q16 volume miss and higher tax rates. Maintain Neutral with a revised target price of Rs 980 (34x FY18E EPS).