Colgate’s Q4FY19 results print was a mixed bag — volume momentum was in line (up 5% y-o-y - domestic), but operationally, it disappointed as Ebitda growth was muted owing to GM-led margin weakness (higher promotional intensity).
Colgate’s Q4FY19 results print was a mixed bag — volume momentum was in line (up 5% y-o-y – domestic), but operationally, it disappointed as Ebitda growth was muted owing to GM-led margin weakness (higher promotional intensity). Management commentary suggests clear focus on prioritising volume growth and share gains after achieving stabilisation of market shares in toothpaste. Focus on strengthening core (family/freshness), constant work on innovations and incremental gains from distribution expansion remain key growth drivers. We do see a clear step-up in growth mindset, which coupled with more palatable valuations, turns us more constructive on the stock. We have an ‘add’ rating on stock with a revised target price of `1,250 (from `1,300) based on 36x March 21 EPS,
cut estimates by 3-4%.
Net revenue grew 6% y-o-y to `11.5 billion (1% below estimates), Ebitda was up 1% y-o-y (5% below estimate on higher ad spend) to `3.1 billion and recurring PAT declined 1% y-o-y to `1.8 billion (6% below our estimate). Ebitda margin contracted 130 bps y-o-y as GM declined 110 bps y-o-y on account of higher promotions and rise in RM costs, A&P rose 40 bps y-o-y (9% jump in absolute) and other expenses rose 35 bps y-o-y; staff cost declined by 60 bps y-o-y. Colgate sustained its volume growth momentum delivering 5% domestic volume growth (3% overall volume growth due to weaker exports).
Net revenue grew 7% y-o-y to `44.3 billion, Ebitda was up 11% y-o-y to `12.4 billion as margins expanded by 110 bps y-o-y to 27.7% led by 65 bps expansion in GM and 70 bps fall in staff cost. Recurring PAT grew in line with Ebitda at 11% to `7.2 billion. Colgate’s Toothpaste market share in FY19 declined by 100 bps y-o-y to 52.4%, but the drop has stemmed in the last 2 quarters owing to its focused efforts to strengthen core and grow the Naturals segment.