Colgate Palmolive

PRIMARILYa one-brand company, Colgate Palmolive India (CPI) has managed to hold its guard over the years against intense competition from big players such as Hindustan Unilever and Dabur and other regional players. New product variants, aggressive marketing and hikes in product prices helped the company to maintain its growth momentum. Unlike other defensive stocks, Colgate has not only held its own, but also appreciated by over 4% in the past one year.
Business:

Incorporated in 1937, CPI’s flagship products like Colgate toothpaste and tooth powder have secured a place in most Indian households. The company has a range of products including toothpastes, toothpowder and toothbrushes under the ‘Colgate’ brand, besides specialised dental therapies under the Colgate Oral Pharmaceuticals banner.

The company has diversified into a range of personal care products under the ‘Palmolive’ brand name, but the oral care business continues to account for over 90% of its turnover. CPI commands leadership in the toothpaste, tooth powder and toothbrush markets, with a share of 48.4%, 44.3% and 35% respectively in the urban areas for calendar year 2007. The company has designed its product portfolio in such a manner that the products are available at different price points and cater to the requirements of consumers across all segments.

While there is intense competition from low-priced brands in the oral care business, Colgate Cibaca continues to be the undisputed leader.

Growth Strategy:

launch new products in an attempt to achieve a growth in profits. The company has developed a product portfolio spanning oral care, skin care and personal care segments and has undertaken strategic initiatives focused on consumers, dental professionals and retail customers. It conducts a variety of consumption-building activities like dental education programmes, making itself visible at dental conventions, observing the oral health month with dental professionals and having a professional sampling programme.

With urban India having a per capita dental care product consumption of 92 grams per month against China’s 219 grams, the Indian market offers a huge opportunity for an increase in the consumption of oral care products. The company also sees an immense opportunity to boost the per capita consumption by increasing the frequency of teeth brushing.

Financials:

CPI’s net sales rose at a compounded annual growth rate (CAGR) of 9.2% over the past five years to Rs 1473.8 crore in FY08. During the same period, the net profits grew at a CAGR of 22.5% to Rs 235.7 crore. The dividend payouts have grown at a much higher CAGR of 25%. The company, on an average, pays out around 90% of its net profits in the form of dividends. It has a strong balance sheet befitting a FMCG company, with zero debt and healthy cash flows. Realising that it was over capitalised, CPI reduced its capital from Rs 136 crore to Rs 13.6 crore in FY08. This made its equity and net worth ratios even more attractive. The company has been on an aggressive growth path since the past two years and this is reflected by its improved financials over the past two fiscals.

Valuations:

The company is likely to close this fiscal with sales of Rs 1663 crore and net profit of Rs 283 crore. This will lead to a PE of 21.4. Assuming that the company’s sales revenues grew by 14% in 2009, as was the case in the past, one can expect profits of Rs 322 crore. This will further bring down the PE to 18.8. At a dividend yield of 3, investors looking at steady returns can consider this stock with long-term perspective.

Stock views on Colgate Palmolive, Welspun Gujarat Stahl Roh, Rolta India

Hem Securities on Rolta India - Target Rs 255

Hem Securities has recommended a buy rating on Rolta India with a target price of Rs 255 in its research report.

"The company’s future prospects are becoming brighter with the various orders in hand and improving yearly and quarterly performance. Presently, the company is running at a P/B multiple of 2.02x to it’s FY09 book value of Rs.88.42 while the P/E multiple of the company is running at 9.77x to its FY09 EPS of Rs.18.25. However, the industry is running at a P/E multiple of 19.30x which leaves the stock with a significant upside potential. Hence, we recommend 'BUY' on the stock with a medium term price target of Rs.255.00," says Hem Securities' research report.


SKP Securities on Welspun Gujarat Stahl Roh - Target Rs 362

SKP Securities has recommended a buy rating on Welspun Gujarat Stahl Roh with a target price of Rs 362 in its research report.

"Welspun has the strong order book position of Rs 68.4 billion, executable within 12-15 months, of which 80% are export orders and rest are domestic. We recommend Buy rating on the stock with a target price of Rs 362/- in 18 months implying a P/E multiple of 14x of FY11E earnings," says SKP Securities' report.


KRChoksey on Colgate Palmolive - Target Rs 703

KRChoksey has recommended a buy rating on Colgate Palmolive (India) with a target price of Rs 703 in its research report.

"CPIL continues to sustain its leadership position in the Rs. 4,000 crore Indian Oral care industry, with a dominant market share of 50%. CPIL - managed by professionals, having concentrated business model, good cash generation from operations, zero debt and surplus cash bank balance is attractive in the Indian FMCG space. Strong brand loyalty, low penetration level, increased hygiene awareness and increasing contribution from rural India are the growth drivers for the company. We initiate our coverage on the stock with a ‘BUY’ recommendation with a target price of Rs. 703, giving an upside potential of 16%. We have valued the company at a P/E multiple of 20x FY11E EPS of Rs. 30.3," says KRChoksey's research report.

Stock views on IVRCL Infra, Colgate Palmolive, Sun Pharma

Angel Broking on Sun Pharma - Target of Rs 1526

Angel Broking has maintained its buy rating on Sun Pharmaceutical Industries with price target of Rs 1526, in its report.

"During FY2009, the company’s performance was driven by sales of the generic version of Protonix and robust growth in the Domestic Formulation Segment. However, in FY2010, owing to subdued sales from the said product, we expect moderation in the company’s overall Top-line growth and also its impact on overall Profitability."

"Without considering one-off opportunities, management has guided towards 13-15% growth in Top-line. However, we expect the company to clock Sales growth of 8.8% during the period and would monitor the company’s performance before revising our FY2010 numbers. We have also introduced our FY2011 numbers and expect the company to post 11.6% and 11.4% growth in Sales and Net Profit, respectively. On the valuation front, at Rs 1,219 the stock is trading at 16.0x FY2010E and 14.4x FY2011E Earnings, respectively. We maintain a Buy on the stock, with a Target Price of Rs 1,526," says Angel Broking's report.

IIFL on Colgate Palmolive - Target of Rs 627

IIFL has upgraded its rating on Colgate Palmolive (India) to buy from add with a target price of Rs 627 in research report.

"Colgate’s 4QFY09 results were significantly ahead of our estimate and consensus: net profit grew 38% YoY, while sales growth momentum accelerated to 16%. The revenue growth was entirely due to volumes (up 15% YoY). EBITDA margin expansion of 342bps was driven by a reduction in raw-material costs and advertising expenses. While the raw-material cost reduction (down 116bps) was expected, given declining raw-material prices, the fall in advertising expense (down 334bps) reflected lower media costs and a fall in the overall category advertising."

"We expect Colgate to sustain c15% sales growth going forward and estimate earnings will grow at a faster annualised rate of 18% (over FY09-11), led by a 90bps expansion in EBITDA margins. Besides being a strong rural play (45% of sales from rural areas), Colgate offers high volumes and earnings visibility and has one of the best capital efficiencies in the sector. We expect the stock to re-rate from hereon and raise our target multiple from 17x to 21x. Our new one-year target price is Rs 627. The stock also offers a 4.2% dividend yield. We upgrade the stock to 'BUY' from 'ADD', with a target price of Rs 627," says IIFL's research report.

Motilal Oswal on IVRCL Infra - Target of Rs 348

"Post FY09 results (earnings above estimate by 5%), we are upgrading our earnings estimates for FY10 to Rs 22.6/sh (+20.2%) and FY10 to Rs 25.2/sh (+12.7%) to factor in higher revenue growth and EBITDA margins assumptions. Maintain Buy with a price target of Rs 348/sh. We have valued core business at Rs 296/sh (13x FY10 earnings), BOT projects at Rs 30/sh (book value) and other subsidiaries at Rs 22/sh (based on the current m-cap discounts)," says Motilal Oswal's research report.