Buy Colgate; target of Rs 1540: Motilal Oswal

Motilal Oswal's research report on Colgate

CLGT posted healthy volume growth of 7% YoY (est. 4% growth) in 3QFY19. Net sales came in line growing 6.4% YoY to INR11b (est. INR11b). EBITDA was up 11.2% YoY to INR3.1b (est. INR2.9b), while Adj. PAT grew 12.6% YoY to INR1.9b (est. INR1.8b). Market share for toothpaste and toothbrush category was reported in the quarterly results this time around. Gross margin saw slight contraction of 10bp YoY to 65.1% (est. 64.7%). Lower operating costs – staff costs down 80bp YoY as % of sales, other expenses down 30bp YoY and ad spends down 20bp YoY – meant that EBITDA margin expanded 120bp YoY to 28.6%. Absolute ad spends were up 4.4% YoY to INR1.26b (INR4.1b for 9MFY19; up 6.6% YoY).

Outlook

Valuing the company at 43x December’20 EPS (5% premium 3-year and 5-year average multiple), we get a target price of INR 1,540. Maintain Buy.