Colgate Palmolive –Buy- Anand Rathi
Colgate’s 4Q10 net profit was up 42% y-o-y. Given less competition, its pricing power and sub-segmentation strategy, we expect Colgate to gain market share and report revenue and net profit CAGRs of 17% and 14%, respectively, over FY10-12. We rate the stock a BUY, and raise our target price to Rs930.
Colgate’s revenue grew 13.4% in 4Q, led by volume growth of 11%. It gained market share in toothpastes and toothbrushes, of 180bp and 360bp, respectively. In toothpowders, however, it lost 220bp, which could have been due to consumers’ shift from toothpowders to toothpastes.
EBITDA margin was up 640bp mainly on lower raw material costs and despite a 70bp rise in adspend-to-sales ratio. The income-tax rate was 610bp lower and net profit rose 42% y-o-y.
We change FY11 and FY12 estimates to factor in the better operational performance and higher tax rates as the income-tax benefit at the Baddi factory tapers off. We raise our FY11e/12e earnings 2.6% and 3.6%, respectively
We raise the target price to Rs930 (from Rs838) at a target PE of 23x 12-month forward earnings, a 42% premium to the Nifty and in line with its 10-year average premium.
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