2025-05-05 03:32:15
Latest Post
AZAD Engineering Ltd signs long term supply agreement with GE Steam Power GMBH
Odyssey Technologies Ltd recommends final dividend of Rs. 1
Ceinsys Tech Ltd recommends final dividend of Rs. 3.50
Netweb Technologies India Limited recommends dividend of Rs. 2.50
D-Link India Ltd recommends final dividend of Rs. 15
Research
Accumulate Colgate-Palmolive - Biting into larger marketshare - Elara Capital
Posted On : 2010-11-04 22:30:21( TIMEZONE : IST )
- Colgate-Palmolive
- Rating : Accumulate
- Target Price : INR975
- Upside : 11%
- CMP : INR880 (as on 29 October 2010)
Stable growth in toothpaste, toothbrush categories
Toothpaste and toothbrush categories have shown a stable double digit volume growth of 12% YoY and 24% YoY respectively for Q2FY11. All flagship brands, "Colgate Dental Cream", "Active Salt", "Max Fresh", "Cibaca" and "Colgate Sensitive" toothpaste have posted a healthy volume growth. The company gained 130 bps of market share to 53.3% for Jan-Sept'10 in the toothpaste category and 70bps to 40.5% in the toothbrush category.
Gross margin may sustain high levels on lower operational costs
The company is smartly maintaining its gross margin at a high level despite the increasing raw material costs. Although raw material prices during the quarter were high, Colgate's gross margin during quarter expanded by 261bps YoY to 61%. Considering the market leadership in the toothpaste and toothbrush segment, its efficient supply chain management and lower cost of operations, we believe that the company would be able to maintain its gross margin going ahead.
Low A&P spend with rational competition to sustain EBITDA
We find Colgate to keep its ad-spend under control during the quarter at around 13.9%, lower by 255bps YoY. With a limited number of players contending for the market share currently, we find Colgate in a better position to defend its market share in the medium term. We do not expect an irrational price war in the tooth paste category in the medium term.
Valuation and recommendation
Considering the double digit volume growth, healthy margins and an improving market share in the toothpaste and tooth brush category, we expect the stock to perform going forward. At the current price, the stock is trading at 26.6x FY11E earnings of INR 33.1 and 23x FY12E EPS of INR 38.3. We maintain our 'Accumulate' on Colgate with an 11% upside with a target price of INR975, arrived at by the SOTP of valuation done on the basis of PE, EV/EBIDTA, M-Cap to sales and DCF.
