Colgate-Palmolive (India) - SC
2QFY14 – Sharp decline in profitability
UNDERPERFORM, CLGT IN, CMP INR 1279.1, Price Target INR 1096.0
- Results significantly below expectations – Net sales grew 16%, but EBITDA and PAT declined 17% and 25%.
- Despite high promotions and new launches, volume growth in toothpaste was lower at 9% (11% in 1QFY14).
- Despite 140bps y/y gross margin expansion, OPM was down 640bps y/y due to a significant jump of 700bps in adspends and other expenses.
- Maintain Underperform with a PT of INR 1,096 on the back of continued margin pressure (IER cuts FY14/15E EPS by 8%/5%) and stretched valuations (forward P/E of 32x).