Analyst corner: ‘Hold’ on Colgate-Palmolive, price target Rs 1,365

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Published: July 20, 2019 1:43:48 AM

Cibaca franchise has also done well during Q1.

 

CLGT’s market share is showing signs of stabilization post market share losses to naturals player over FY16-18 even as competitive intensity remains high in the oral care category.

CLGT delivered an in-line Q1 with 4% YoY volume and 6% domestic sales growth. Overall sales growth was a tad below at 4.1% YoY due to lower exports. We believe company grew volumes largely in-line with category, indicating stable market shares (down 20bps QoQ).
While valuations (35x FY21 PE) are reasonable vs sector, relatively modest earnings growth keeps us on the sidelines. Overall 4% volume growth in domestic business was in-line with our expectations.

Market share in toothpaste was down marginally from 52.3% to 52.1% while it improved in toothbrush to 48.2%.
Competitive intensity remains high in toothpaste given presence of 3 key players, HUL, Dabur and Patanjali. During Q1, CLGT seems to have lost ~20-30 bps share as HUL improved its execution in oral care while Dabur continues to grow well through its flagship, Dabur Red, franchise.

Toothpaste category continues to see higher growth at mass and mid-end of the portfolio. Swarna Ved Shakti continues to gain traction with market share inching up to 3% helped by extensive sampling done by the company to recruit new consumers. Cibaca franchise has also done well during Q1. Colgate Active Salt is showing signs of improvement.

CLGT’s market share is showing signs of stabilization post market share losses to naturals player over FY16-18 even as competitive intensity remains high in the oral care category. While valuations are reasonable relative to the sector, and absolute downside looks limited post recent correction, a modest earnings growth trajectory of 11% CAGR over FY19-21 makes risk-reward balanced. We value the stock at 41x FY21 PE (in-line with 5 year avg PE) to arrive at price target of `1,365. Maintain ‘hold’.

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