Edelweiss research report on Colgate-PalmoliveColgate Palmolive’s (Colgate) Q1FY17 revenue growth at 8.9% YoY came in line, while 4% YoY PAT dip (adjusted for one-off) was below our estimate. Domestic volume growth recovered to 5% YoY (highest in past 7 quarters), albeit on a low base of 2% YoY. Though the 23.9% YoY jump in A&P spends impacted EBITDA margin (down 104bps YoY), it will help market share amidst heightening competition. We like Colgate’s increased aggression in the herbal space (recently launched Colgate Sensitive Clove and Cibaca Vedshakti, 29% cheaper than Patanjali’s Dant Kanti).
Volume recovery and return of pricing growth in FY17 (FY16 pricing impacted by phasing of fiscal sops) are re-rating triggers. Though increased ad spends could impact margins, it will ensure market share gains. At CMP, the stock trades at 35.6x FY18E EPS. We maintain ‘HOLD/Sector Performer’ with target price of INR 1,084.
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