Colgate Palmolive (India): Recommendation Review

We had recommended Colgate Palmolive to our readers in the Choice Scrip section in DSIJ Vol. 27, Issue No. 2 (dated January 2-15, 2012), when it was trading at Rs 1014. Our recommendation was backed primarily by the scrip’s strong financial performance. It had posted a strong volume growth of more than 10 per cent in 13 consecutive quarters. In addition, factors like its zero debt status, the increasing market share on account of new product launches, a strong MNC parentage and a possibility of more product additions from the parent company added to the positives.

After our recommendation, the scrip is now trading at Rs 1118, providing an appreciation of 10 per cent. Its strong financial performance for the December 2011 quarter was the prime factor behind the same. For December 2011, its topline stood at Rs 690 crore and the bottomline at Rs 115.58 crore as against Rs 576.64 crore and Rs 66.24 crore respectively in December 2010. This takes the trailing four-quarter EPS to Rs 32.07, resulting in a P/E of 34.75x. This is in line with that of its peers.

However, we recommend that our readers book partial (50 per cent) profits at the current levels as the scrip has already provided good returns even in the current uncertain market. Despite this, we feel that the dividend payment is also an additional beneficial factor that must be considered. With the Q4 FY12 results expected soon, we feel that holding the rest will be a prudent strategy.