Reduce Colgate Palmolive; target of Rs 815: Angel Broking

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Reduce Colgate Palmolive; target of Rs 815: Angel Broking

Angel Broking is bearish on Colgate Palmolive and has recommended reduce rating on the stock with a target of Rs 815 in its May 30, 2011 research report.

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Angel Broking is bearish on Colgate Palmolive and has recommended reduce rating on the stock with a target of Rs 815 in its May 30, 2011 research report.

"For 4QFY2011, Colgate reported a weak performance. Top-line growth stood at 12.6% yoy, 2.9% below our estimates, driven completely by volumes. Earnings declined by 0.3% yoy due to a sharp contraction in OPM and higher tax from the manufacturing plant in Baddi. Operating margin contracted by 267bp yoy on account of spike in ad spends, increased other expenses and higher staff cost."

"Colgate registered top-line growth of 12.6% yoy, which was completely driven by volumes (registered 12% of overall volumes). The toothpaste category witnessed strong volume growth of 13% yoy, resulting in an increase in the volume market share to 53.1% (52.9%). All core brands, Colgate Dental Cream, Active Salt, Max Fresh and Cibaca contributed to the company's top-line growth. In the toothbrush category, Colgate toothbrush category lost market share and currently stands at 40.3%. The toothpowder segment grew at a slower pace compared to last year and lost its market share, which currently stands at 46.4% yoy. Colgate Plax registered strong volume market share growth to 22% (7.5%)."

"During FY2011-13E, we expect Colgate to report a 15.3% CAGR in its top line (largely volume growth). We have modeled in margin contraction of 40bp yoy, due to higher ad spend and lower operating leverage. However, in terms of earnings, we expect Colgate to register an 11.9% CAGR (11.4%) in FY2012E), as we model in higher tax rate (~24% in FY2012). Hence, we retain our Reduce rating on the stock with a revised target price of Rs815 (Rs837), based on 22x FY2013E EPS - in line with its historical valuation," says Angel Broking research report. 

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To read the full report click on the attachment