>COLGATE PALMOLIVE LIMITED (KR CHOKSEY)

INVESTMENT RATIONALE
Colgate’s strong brand portfolio across price points, strong customer connection, an opportunity to expand penetration of oral care in rural markets and favorable margin outlook makes it attractive in FMCG space. Market share gains continue to remain healthy with market share in terms of value in toothpaste category rising 200bps y-o-y to 50.2% in Mar’09 quarter, which further increased to 50.7% in Apr-09 quarter.

Key Developments
Low penetration levels of modern oral care in India provide enough headroom for about 8-10% volume growth in the toothpaste category over the next couple of years. Colgate’s market leadership position coupled with a wide product portfolio covering all price points and strong distribution structure has helped it to increase its consumer base substantially over the past few years, reflected in the consistent market share gains as well. Strong brand equity has helped pricing power for the company too. It undertook a 2-3% price hike across its key brands in April 2009.

Results:
Colgate reported top-line growth of 16% and adjusted net earnings growth of 47% y-o-y during Q4FY09. Key highlight was 15.2% volume growth registered for the toothpaste category, which is the best ever reported growth by the company in recent years. EBITDA grew 41% y-o-y helped by 120bp gross margin expansion (on lower raw material costs, freight and excise duties) and lower ad spends.

Valuations
At CMP of Rs. 474, the stock is trading at 23x its FY09 EPS of Rs. 21.0. At the CMP we recommend a BUY rating on the stock with a target price of Rs. Rs. 545.

To see full report: COLGATE PALMOLIVE