Scripscan:Colgate-Palmolive (India) Ltd
cmp:1000
Code:500830
Story:Colgate Palmolive (CLGT) posted 74% YoY growth in 3QFY12 PAT to INR1.16b v/s estimate of INR1.01b. Toothpaste volume growth was robust at 15%. Market share during the period December 2010-November 2011 was 52.5%. Overall volume growth was 13% for the second consecutive quarter. EBITDA margin expanded 550bp YoY as OHM (Oral Health Month) got pushed from 3Q to 4Q, resulting in 550bp decline in ad spend. 520bp lower tax rate also boosted profitability.CLGT is setting up a new toothpaste facility at Sanand in Gujarat, for which it has paid lease charges of INR426m for land.I estimate the capital cost at INR2b spread over FY12 and FY13. The company has sufficient capacity to maintain its growth trajectory till the new unit comes on stream. Competitive intensity in oral care is a major challenge for CLGT in the medium term;I note that it has been losing toothbrush market share to P&G's Oral-B in recent months. CLGT is also facing intense competition from Glaxo's Sensodyne in the super premium segment. Media reports indicate that P&G has started pilot testing of toothpaste in India, which could result in its product being launched in FY13 itself.I expect sales growth and profit margins to take a hit once P&G launches its toothpaste in India.Am raising earnings estimates by 1%, which captures the net impact of lower interest income due to capex and tax rate 100-150bp lower than the earlier estimate.I expect 12.5% PAT CAGR over FY11-13, led largely by volume growth in oral care. The stock trades at 31x FY12E and 26x FY13E EPS. Current valuations build in structural positives and are at 25% premium to the 5-year average P/E multiple. Maintain Sell with a target of 900rs.
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