INSUBCONTINENT EXCLUSIVE:
Nirmal Bang Securities has given an 'accumulate' call on Colgate-Palmolive (India) (CLGT) with a target price of Rs 1,320.
Shares of
Colgate-Palmolive (India) traded at Rs 1,190.35 around 9:55 am on 19 July, 2019
The brokerage has set a one-year horizon for the stock to hit the target price
Investment rationale by the brokerage:Volume growth shows some improvementCLGT delivered a 4 per cent year-on-year (YoY) growth in topline
in Q1FY20, which was largely led by volume growth of 4 per cent YoY
Volume growth was lower than anticipated because of distress in rural demand
"We expect CLGT to continue its trajectory of single-digit revenue growth over the medium term
Our concerns about category growth persist as CLGT will find it difficult to retain market share without adequate marketing expenditure and
Ebitda margin stood at 27.6 per cent slightly ahead our estimate caused by lower than anticipated COGS and reduced other expenses on
Ebitda margin witnessed an expansion of 60bps on account of the same
Further, the scope for margin expansion seems to be limited given the concerns about category growth, slow pace of premiumisation and
expected rise in A-P costs.
Outlook and valuationThe brokerage expects CLGT to continue its trajectory of single-digit revenue growth over
"In our opinion, the possibility of margin expansion is limited because of higher competitive intensity, slow pace of premiumisation and
Therefore, we have retained our Accumulate rating on CLGT with an unchanged target price of Rs 1,320 based on a P/E multiple of 38 times,
implying an upside of 10 per cent from the current market price," the brokerage added.