Buy Colgate; target of Rs 1090: Motilal Oswal

India’s oral care category per capita consumption and premiumization are among the lowest even in comparison to that in the other emerging markets. If India manages to achieve China’s current levels over the next decade, its oral care market size (currently ~INR 76bn) will quadruple from current levels, translating to potential 15% CAGR category growth for the next decade.

 

After the 16% decline in the stock price from its peak, Colgate is now trading at 32x FY18E EPS, a discount to both its MNC peers like HUL, Nestle and PGHH as well as its own historical average 1-year forward multiples for the past five years. On P/B, the stock is trading closer to a decadal low. After being taken by surprise by Patanjali, we are encouraged by the strong response in the form of slew of new launches and increased ad spend, which has enabled market share gains in the past two months after some losses in the preceding three quarters in what has been otherwise a consistent uptrend in market share to multi-decade highs until June 2015. With resumption of healthy earnings growth from FY18, and given best of breed return ratios, likely increase in already impressive operating and free cash flows as well as dividend payout going forward, we target 36x June 2018 multiple (in line with average 1-year forward multiple for the past five years), giving us TP of INR 1,090 (INR 942 earlier) and potential upside of 18%, resulting in upgrade to Buy.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.