Hold Colgate-Palmolive India; target of Rs 1042: ICICI Direct

ICICI Direct's research report on Colgate-Palmolive India

CPIL is the largest player in oral care in India with a market share (September 2016) of 55.7% in toothpaste and 46.6% in toothbrush category. Despite Procter & Gamble’s (P&G) re-entry into the toothpaste segment in India in June, 2013 (brand: Oral B), CPIL’s volume market share only strengthened (from 55% in June 2012 to 55.7% in September 2016). Similarly, the market share in toothbrush has also increased from 39% to 46.6% for the same period. However, the entry of Patanjali has disrupted the toothpaste category, denting CPIL’s market share by 150 bps from 57.2% in 2015. We believe HUL, the second largest player in the toothpaste segment, has been more adversely affected than CPIL with a market share loss of 300 bps between 2013 and 2015. However, CPIL has an edge over its indigenous rival in the form strong brand equity along with a vast distribution network covering over 50 lakh outlets. We believe CPIL’s renewed focus on the naturals segment under toothpaste (Colgate Sensitive Clove, Cibaca Vedshakti), alongside its presence in traditional segments (family, whitening, freshness, gum care, sensitive and kids), would aid the company in fending off disruptive competition, given its expertise in launching innovative product offerings.

We estimate sales and PAT CAGR of 13.1% and 13.7%, respectively, in FY16-18E. We believe most major positives have been discounted in the stock price that is currently trading at 36x its FY18E EPS of Rs 27.4. We ascribe a target price of Rs 1042/share with a HOLD recommendation.