Colgate-Palmolive (India) Ltd. share price target

Revenue for the standalone business improved by 4.1% YoY to Rs. 1,136cr in Q3FY20, with Domestic net sales growing 4.3% YoY pulled down by a lackluster growth in volumes (+2.3% YoY). We believe that a reversal of slowdown in rural sales is essential for a topline turnaround. To tackle the rising competition and adverse market conditions, the company increased its advertising and promotional expenditure by 13.8% YoY and employee expenses by 8.4% YoY. This additional expenditure resulted in the EBITDA margins contracting by 100 bps to 27.8%. Net Profit grew 3.6% YoY to Rs. 199cr primarily aided by lower taxes (-23.8% YoY to Rs. 68cr). Adjusting for the...

Colgate's market share has largely stabilized but we still don't see signs of gaining meaningful share anytime soon. As a category leader, Colgate needs to drive category growth at a time when natural's fad is again gaining traction. Senior level management churn (Ram Raghavan - MD and Mukul Deoras India chairman) keeps us interested in the story. Ram began his career as a management trainee with Colgate India in 1997. His recent experience as the head of innovation center at Colgate-Palmolive LATAM is exactly what Colgate India needs i.e. product excitement and diversification. We remain NEUTRAL on the company. We will be tracking any revamp in strategy that may trigger our upgrade. Colgates 3Q performance remained weak as net revenue grew by mere 4% (est 4.5%) with 2.3% volume growth (est 3.5%). The co has underperformed most other FMCG cos over the last 12/18 quarters with revenue CAGR of 5/4%. Oral care category was under pressure in urban as well rural markets. EBITDA growth was flat/1.4% in 3Q/9MFY20. We cut EPS by ~3% in FY20/21/22 to factor slower than expected recovery. We value Colgate on 35x P/E on Dec-21 EPS, our TP is Rs 1,392. Maintain NEUTRAL.

High penetration of oral care category curbing growth Over the years, CPIL has remained a market leader in the oral care category with 50% market share. However, the category has been saturated with ~88% penetration levels. Moreover, intense competition in the herbal space has taken away first mover opportunity in that space. Moreover, the company has not pursued aggressive expansion in the personal care category. This makes CPIL a large player only present in single saturated category and, hence, poses limited growth opportunity for the company. We...

However, we remain optimistic on the medium-term earnings prospects, given (i) new-found aggression after the recent CEO change (ad spend has grown sharply for two quarters), (ii) direct reach expansion and (iii) past track record of regaining share due to its strong moats (brand, global expertise, category focus and distribution). While reported numbers on sales/EBITDA/PAT were either in line or ahead of estimates, (i) lower-than-expected volume growth, (ii) category weakness in the near term and (iii) the likelihood of category recovering with a lag drive 8-10% cut in our forecasts for FY21. While reported numbers on sales/EBITDA/PAT were either in line or ahead of estimates, (i) lower-than-expected volume growth, (ii) category weakness in the near term and (iii) the likelihood of category recovering with a lag drive 8-10% cut in our forecasts for FY21.

26 November 2019 It was important for CLGT to arrest the hemorrhage in the toothpaste market share before resuming the growth path. In that regard, the company has done well over the past few quarters to maintain a stable market share of 51%-52% like Cibaca Ved Shakti and Swarna Ved Shakti, as well as the recently launched Charcoal toothpaste. CLGTs market share in herbal is around one third and therefore sharp growth in the salience of the category (now 25-30% of toothpaste market sales) impacted its overall market share. At a time when wholesale trade (both rural and urban) is facing pressure, this move would have helped arrest the hemorrhage and is likely to aid growth in market share. The premium segment of the market was hurt amidst sharp growth in the salience of the natural segment, but this has changed over the past few months.

Q2FY20 sales were up 4.5% YoY to Rs. 1,213cr. driven by a 5.0% increase in domestic sales that was in line with market expectations. Prevailing liquidity crunch in the economy and rural slowdown along with slow volume growth, negatively impacted the overall topline growth. Colgate Palmolive posted Q2FY20 EBITDA of Rs. 323cr (-2.0% YoY) while the EBITDA margin declined 180bps YoY to 26.6% on account of strong investment in advertising and promotion expenditure on the back of a difficult demand environment. PAT beat consensus estimates by 4.4% and was up 24.3% driven by the...

Colgate's market share has largely stabilized but we still don't see signs of gaining meaningful share anytime soon. As a category leader, Colgate needs to drive category growth at a time when natural's fad is moderating. New management (Ram Raghavan - MD and Mukul Deoras India chairman) keeps us interested in the story. Ram began his career as a management trainee with Colgate India in 1997. His recent experience as the head of innovation center at Colgate-Palmolive LATAM is exactly what Colgate India needs i.e. product excitement and diversification. Thereby, we model revenue/EBITDA CAGR of ~9/13% over FY20-22E. We don't expect a re-rating in the stock owing to modest earnings expectation. We maintain NEUTRAL. Colgates 2Q performance was weaker than anticipated. Company has arrested market share decline but that is only half the job. Oral care category growth lags sector growth and hence Colgate needs to gain share to justify re-rating in the stock. We cut EPS by 1-3% and value the co. at 35x on Sep-21 EPS, arriving at a TP of Rs 1,400. Maintain NEUTRAL.

flavors and Palmolive Luminous Oil shower gel Colgate reported disappointing numbers with just 4% equated volume growth (percentage increase in dozen packs) despite 250bps increase in ad-spends (est tonnage volume growth at 1.5-2%). Although CLGT has stopped sharing...

of FY20-21 by 0.9-1.3% given 1) 10- year low 1Q20 exit market share 2) 1Q tonnage volume growth of just 1.3% and 3) slowdown in toothpaste segment except naturals. However, Colgate is making a push for volumes led by 1) 30% increase in direct distribution 2) bringing family pack prices of Total closer to CDC and 3) more offers in bundled packs. Instead of being more...