Hold Colgate-Palmolive India; target of Rs 1240: JM Financial

JM Financial's research report on Colgate-Palmolive India

Colgate’s 4QFY18 volume growth was a tad below our forecast at 4% - on a soft comparator, though (volume had declined 3% in 4Q LY due to the continued impact of demonetisation). Overall revenue, though, was significantly lower (470bps) vs expectations due to a rather sharp deceleration in net realisation growth to merely 1% in 4Q vs 4-6% in past 6M - possibly a function of Colgate’s pre-GST price-hike having now anniversarised.

Outlook
Stock seems quite reasonably valued on relative basis at c.43x NTM EPS which is a c.15% discount to sector ex-ITC average of 50-51x, but lacks near-term trigger, in our view. Interestingly, Colgate’s trailing (FY18) EV-EBITDA of 29x is lower vs HUL’s 2-year forward (FY20) EV-EBITDA of 32-33x.

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