Hold Colgate-Palmolive; target of Rs 1018: ICICIdirect

ICICIdirect's report on Colgate-PalmoliveColgate-Palmolive (CPIL) reported net sales growth of 3.8% to Rs 1031.8 (I-direct estimate: Rs 1050.5 crore) largely led by 3% volume growthOperating margins improved 591 bps to 24.5% (I-direct estimate:21%) as RM cost, employee expenses and A&P spend as percentage of sales were down 139 bps, 128 bps & 408 bps, respectively.Though tax rate increased 678 bps, PAT expanded 21.1% to Rs 156.9 crore (I-direct estimate: Rs 152.6 crore) on account of higher EBITDA Market share (January-September 2015) in toothpaste increased 90 bps YoY to 57.6% while it grew 70 bps to 43.3% in toothbrush for the same period Outlook & valuationWith Colgate’s strengthening presence in toothpastes in spite of fierce competition in the segment, we remain positive on the long term growth driven by increasing per-capita consumption and premiumisation in the segment. The company’s unmatched product portfolio would continue to maintain its dominance in the oral care segment. Though there are few near term concerns for margins given the increased competitive intensity in the segment and expired excise benefits, we believe CPIL’s high focus on innovation and strengthening market share would continue to yield positive long term returns for the company.The stock is currently trading at 33.4x its FY18E EPS of Rs 29.2, higher than its historical average P/E of 28x. We value CPIL at 35x its FY18E price to earnings to arrive at a target price of Rs 1018 per share. We maintain a HOLD recommendation on the stock, says ICICI direct research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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