Corporation’s Q3FY17 print was broadly in line with our estimates. ADHO volumes declined 4% y-o-y due to demonetisation impact (though in line with our estimates) accentuated by distributor destocking, sharp dip in wholesale sales and additional drag from CSD. We continue to see value in the stock both on absolute and relative basis and retain our buy rating with a revised TP of R450 (from R460) based on 22X December 2018E PE.
Revenues declined 5% y-o-y to R1.86 billion (in line with our estimates), EBITDA declined 10% y-o-y to R607 million (2% above estimates) and recurring PAT declined 2% y-o-y (10% above our estimates). Marginal outperformance in EBITDA, despite 50 bps miss in GMs (up 260 bps y-o-y, down 80 bps qoq), was largely on account of sharp cut in advertising (down 16% y-o-y); employee costs jumped 37% y-o-y (up 260 bps yoy) as the company continues to scale up management bandwidth.
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We have broadly retained our earnings estimates as 3-5% y-o-y cut in EBITDA over FY2018-19E (as we bake in lower GMs post surge in LLP prices) gets negated by higher other income. The stock’s continued underperformance versus the sector makes it an attractive relative call (trading at 20X FY2018 EPS, at ~45% discount to sector average of 36X, ex-ITC) and we continue to see ample margin of safety even from an absolute perspective.