Motilal Oswal neutral on Colgate Palmolive (India)

Motilal Oswal has maintained neutral rating on Colgate Palmolive (India) with a target of Rs 1400, in its January 31, 2013 research report.
 
“Colgate Palmolive's (CLGT) results for 3QFY13 were below expectations. Sales grew 13.9% to INR7.6b (v/s our est of INR7.8b), EBITDA margin declined 210bp to 19.1% (v/s our est of 21.3%) and adjusted PAT declined 4% to INR1.1b (v/s our est of INR1.3b). Higher than estimated advertising spends led to the lower than expected EBITDA margin.”
 
“Toothpaste volumes grew 8%, the lowest since 3QFY08, though CLGT gained 180bp market share YoY (54.2% for CY12). In the Toothbrush segment, the company reported market share of 39.5% for the same period (up 370bp). Overall volume growth was 7%. Without extrapolating the one quarter of lower than estimated volume growth as a slowdown, the softening is likely driven by a combination of lower HPC spends, high base and rising competitive intensity. Gross margin declined 30bp, as material costs remained firm. Increase in ad spends (up 280bp) and staff cost dragged down EBITDA margin by 210bp to 19.1%, leading to flattish EBITDA (up 2.4%). Higher ad spend was led by the Oral Health Month Program, which was run in October and November in 2012.”
 
“We tweak our revenue and earnings estimates for FY13-15 downwards by 2-3.5% to model lower than estimated volume growth and EBITDA for the quarter. We now estimate 16.5% PAT CAGR over FY13-15. The stock trades at 30.5x FY14E and 26.4x FY15E EPS and has delivered 12% return since our upgrade in October 2012. We maintain Neutral, with a revised target price of INR1,400 (INR1,450 earlier) based on 27x FY15E EPS (P/E multiple unchanged). Slowdown in rural consumption remains the key risk,” says Motilal Oswal research report.

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