Published on 18/06/2019 10:38:38 AM | Source: Religare Securities Ltd

Buy Colgate Palmolive India Ltd For Target Rs. 1390 - Religare Securities


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Mixed quarter; Maintained leadership position

Colgate-Palmolive India Ltd (CPIL) reported mixed set of numbers for Q4FY19, wherein revenue remained largely in-line while margins were disappointing and below our expectation. The company’s revenue grew by 6% yoy led by domestic volume growth. Its EBITDA and PAT grew marginally by 0.9% and 0.4% yoy respectively, impacted by increase in input cost and other expense. While the near term challenges persist, we remain positive on the company’s growth prospects going forward, on the back of innovation, investments behind its brands and cost saving initiatives. We maintain a Buy on the stock with target price of Rs. 1,390.


Q4FY19 Result Update:

* CPIL posted revenue growth of 6% yoy to Rs 1,154cr in Q4FY19, driven by overall volume growth of 3%, domestic volume growth of 5% and new launches in its natural portfolio. During the quarter, CPIL has maintained its leadership position in both its toothpaste and toothbrush category. Further, it gained market share of ~48.2% in toothbrush category from ~45.2% in Q4FY18, while market share in toothpaste remained flat at 52.5%. For FY19, revenue grew by 6.6% yoy to Rs 4,462cr, driven by 5% volume growth.

* CPIL’s gross profit grew by 4% yoy to Rs 744.9cr, while its gross profit margin declined by 110bps yoy, which was impacted by higher raw material cost (+9.1% yoy). CPIL’s EBITDA grew marginally by 0.9% yoy to Rs 310.4cr, while EBITDA margins stood at 26.9%, down by 128bps yoy led by increase in advertisement spends (+9% yoy) and other expenses (+8% yoy). Further, higher other income (+43.8% yoy) restricted PAT margin decline to just 92bps yoy.


Key Concall Highlights:

1) Growth to be driven by increase in direct reach and E-commerce business.

2) Natural portfolio’s market share stood at ~8% in CY18.

3) Management would focus on driving topline, maintaining market share and spending on advertisements.

4) Challenges to remain in near term, however double-digit growth is expected in future.


Outlook & Valuation:

CPIL has maintained its dominant position in oral care segment, both in toothpaste and toothbrush market. Going forward, the company would continue to focus on growing its core brands, innovating new products across all categories, expand its naturals portfolio, increase ad spends and widen its distribution reach across new geographies, which would help it post stronger volume growth and maintain leadership position across its category. Further, CPIL is one of our preferred bet in the FMCG sector and we remain optimistic on the company’s growth prospects. Going forward, its Revenue, EBITDA and PAT are estimated to grow by 10.0%, 12.2% and 11.5% CAGR respectively over FY19-21E. Hence, we maintain a Buy on the stock with target price of Rs. 1,390.


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