Colgate Palmolive Healthy performance; retain Buy :: Anand Rathi

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Colgate Palmolive
Healthy performance; retain Buy
 Maintain Buy. Colgate continued to strengthen its market
leadership in Oral Care via market share gain in the toothpaste
and toothbrush categories in 2QFY11. Based on sustenance of
market share gain and reduction in ad spend-to-sales, we maintain
our Buy rating on the stock with target price of `1,020/share.
 Revenue growth at 13%. Colgate reported revenue growth of
13% yoy. Volume growth, too, stood at 13% yoy. Volumes in the
toothbrush segment increased 24%. The company has increased
its market share in the toothpaste and toothbrush categories by
130bps and 160bps yoy respectively.
 Higher EBITDA margin. EBITDA margin improved 80bps
yoy. Lower raw material costs and ad spend helped improve
margin despite higher staff cost and other expenditure. The tax
rate increased 270bps yoy. Net profit is up 12% yoy.
 Outlook. With HUL losing market share in Oral Care, we believe
Colgate has a fair chance to gain market share as well as reduce its
ad spend in the coming quarters. We expect Colgate to register
earnings CAGR of 13% over FY10-12e.
 Valuation and risks. We value the stock at target price of `1,020
at PE of 25x on FY12e earnings. Our target PE is at 50%
premium to the 12-month forward Nifty PE as against the average
premium of 43% over the past ten years. Key risks are higher raw
material prices and keener competition.