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 innovation," said the brokerage. Better–than-expected operating marginEbitda and adjusted net earnings grew by 6.5 per cent and 9 per cent YoY, respectively.

Ebitda margin stood at 27.6 per cent slightly ahead our estimate caused by lower than anticipated COGS and reduced other expenses on account of AS116.

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 the medium-term.

"In our opinion, the possibility of margin expansion is limited because of higher competitive intensity, slow pace of premiumisation and moderate category growth.

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.