Emkay's research report on Colgate
Colgate’s Q4FY16 revenue was above estimates, but higher A&P mars EBITDA margins. Key highlights 1) Revenues at Rs 10.9bn, up 7% yoy impacted by fiscal phase out, but ex-fiscal phase out, organic growth at 13% yoy. Domestic volume growth at 4% yoy vs estimate of 3% and including exports, volume growth was 6% yoy. 2) EBITDA declined 3% yoy to Rs 2.3bn, Gross margin up 30bps yoy to 63.7%, but higher ad spends (18.2% of sales, up 310bps yoy) weakened EBITDA margin to 21.4%, -220bps yoy. 3) APAT at Rs 1.5bn, down 10.8% yoy.
High innovation pipeline in FY17 will keep ad spends elevated, thus, we have cut our margins by 130/90bps to 22.6%/23.3% and higher depreciation has led to 7% cut in EPS estimates inFY17/18E. While, it’s an improvement in volume profile, it will have to sustain volume and gradually improve driven by innovation & higher consumption, in the wake of heightened competition. Maintain Accumulate with revised price target of Rs 910 (32x FY18 EPS).For all recommendations, click here Disclaimer:
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