Reduce Colgate Palmolive - Remains a pure-play on Oral care - Prabhudas Lilladher

CLGT is a pure-play on huge growth opportunity in Oral care (96% of sales), given low penetration in rural India and premiumisation trend in urban India. Presence across price points and product segments has ensured leadership over the years.

Volume growth slows down amidst rising competition: Toothpaste volume growth has slowed down to ~10% in FY13 from 13-14%. We believe CLGT is finding hard to gain incremental share (last 3 quarter market share ~52-52.5%) as both HUL and Dabur have intensified their efforts to regain lost ground. Dabur has launched Babool Salt, while HUL has launched Pepsodent Pro Relief. HUL has stabilized its share after losing 400bps since FY08.

Premium segments growing faster; Glaxo launches Parodontax: Premium toothpaste segments continue to grow at a faster pace as aggressive marketing is increasing awareness. After Glaxo and CLGT, even HUL has launched Pepsodent Pro Sensitive and Salt variants. CLGT has launched Total Pro Gum relief (Rs92/150gm) and Glaxo has launched Parodontax (Rs100/80gm). We believe that multi-benefit segments will continue to grow at 2-2.5x the market growth rate.

P&G entry remains a threat: P&G's entry into US$1bn toothpaste segment remain a key threat. P&G continues to build strong equity with Oral B brand, which has been launched in several emerging markets in the past 12-18 months. Although CLGT's product range, oral care focus and strong brand will survive any aggressive launch by P&G, higher ad-spends and lower sales growth can impact PAT growth.

Fairly valued at 26.6xFY15, given 14% PAT CAGR over FY13-15: CLGT has posted Adj. PAT growth of 9% CAGR over FY10-13 as EBITDA margins at 24.6% peaked out and tax rate bottomed out. We expect EBITDA margins to stabilize at 22-23% and tax rate to increase to 28% by FY15 (25% in FY13E), enabling 14% PAT CAGR. The stock seems fairly valued at 27.4x FY15E. Reduce

Source : Equity Bulls

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