July 11, 2016 / 18:40 IST
Religare's research report on Colgate
Key takeaways of CLGT’s FY16 AR are: (1) Salience of toothpaste in overall revenues declines 200bps. (2) Advertising and promotion expenses down 120bps and 60bps YoY resp. (3) Cash conversion cycle expands by 5 days. (4) ROE falls to 63% due to an increase in the asset base. (5) FCFF/EBITDA conversion increases slightly. While we like CLGT’s strong franchise, valuations at 36x FY18E EPS seem rich and offer limited upside.
We see tepid volume growth of 6-8% over FY16-FY18E for CLGT on muted demand and a likely loss in market share. Ad spends would remain high in view of stiff competition. Also, valuations at 36x FY18E P/E look expensive in light of the subdued growth profile. Maintain SELL.
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