Neutral on Colgate Palmolive Ltd - Motilal Oswal

Colgate Palmolive (CLGT IN; Mkt Cap USD2.4b, CMP Rs824, Neutral)

Volume growth was 12% and toothpaste volumes grew 13%. Toothpaste market share expanded 110bp to 53.4% over January-November 2010.

Ad-spend surged 60.2% YoY to Rs1.2b and expanded 630bp to 21.6% of sales.

Staff costs increased 110bp partly due to a change in actuarial assumptions, and Other Expenses increased 390bp due to higher cost of freight, power & fuel.

We believe Colgate's ad-spend will be structurally increased due to the quest for market share by existing players and new entrants.

We expect P&G to enter the Indian market shortly. We are revising our FY11-13 estimates downwards by 13-18% to factor in (1) lower realization growth (0.5%), (2) higher ad-spend (150bp) and (3) higher tax rate (up 400bp). We have revised our EPS estimates to Rs29.4 (Rs33.7 earlier) for FY11, Rs32.1 (Rs38.6 earlier) for FY12 and Rs37.1 (Rs45.2 earlier) for FY13. On revised estimates, the stock trades at 25.7x FY12E and 22.2x FY13E. Maintain Neutral.

Source : Equity Bulls

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