06 September 2012

Colgate Palmolive - Volume spurt lends momentum; visit note; Hold ::Edelweiss, PDF link


Colgate Palmolive (CLGT IN, INR 1,217, Hold)
We recently met Ms. Prabha Parameswaran, Managing Director, Colgate-Palmolive (Colgate). The interaction infuses us with confidence about the companys robust volume growth (in double digits for past many quarters), which is likely to remain strong over the coming quarters riding rise in both penetration and per capita consumption. New categories like sensitive toothpaste and mouthwash will further enhance growth and premiumisation. We expect Colgate to be one of the biggest beneficiaries of softness in P&Gs stance (toothpaste entry delayed). But we would watch out for HULs new product Pepsodent Expert Protection. Maintain HOLD as fairly valued over the near term.


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Rural penetration, premiumisation to boost volume; fit to tackle rivals
Colgate’s volume surge is likely to continue unabated aided by: (a) rise in penetration (rural penetration stands at 45% against urban 89%); (b) jump in per capita consumption (India’s at 138gms/year; one of the lowest in the world); and (c) premiumisation. Colgate has been aggressive in wresting market share from competitors and has managed to beat them hollow in most global markets. Also, strong distribution network, almost generic brand, huge customer acquisition initiatives and focus on innovation provide high entry barriers.
New categories, capacity expansion to aid growth
Due to rising awareness among consumers, new categories like sensitive toothpaste and mouthwash have been growing at a high rate and are likely to be a significantly large category over the longer term. Also, Colgate is setting up plants at Sanand (for toothpaste) and Andhra Pradesh (for toothbrush), which will meet rising demand.
Outlook and valuations: Robust; maintain ‘HOLD’
We continue to like Colgate’s continued focus on innovation, market stronghold and building brand equity. Currently, the stock is trading at 31.6x and 27.3x FY13E and FY14E EPS, respectively. We maintain ‘HOLD’ and rate the stock ‘Sector Performer’ on relative return basis.
Regards,

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