Colgate Shares Fall 5% On Valuation Concerns

Colgate Palmolive shares fell over 5 per cent to an intraday low of Rs 962 on Tuesday. The stock in contrast had gained 5.77 per cent on Monday following its better-than-estimated earnings. 

Domestic brokerage Religare in a note to clients said although Colgate's Q1 earnings were above expectation, its shares are fully priced at current level.

"While we like Colgate's established franchise, the combination of weak macro conditions (leading to mid-single-digit volume growth) and elevated advertising spends to counter competition make the risk-reward profile unattractive," the brokerage said in a note to clients.

Religare has maintained "sell" rating on Colgate with a target price of Rs 920, up from earlier target of Rs 800.

At current valuation of 38.3 times estimated FY18 earnings, Colgate shares seem rich considering an expected 12.9 per cent earnings CAGR (compound annual growth rate) over FY16-19, Religare added.

Colgate yesterday reported 12 per cent growth in its revenue at Rs 1,149 crore supported by 5 per cent increase in domestic volumes. Its net profit increased by 8 per cent to Rs 126 crore.

Colgate's EBITDA margin or operating margin contracted by 100 basis points to 20.9 per cent in Q1 due to higher advertising spend, staff cost and other expenses, Religare said.

Colgate shares closed 4.39 per cent lower at Rs 970.70 apiece compared to 0.38 per cent fall in the broader Nifty.