Buy Colgate; target of Rs 1810: Motilal Oswal

Motilal Oswal's research report on Colgate

Colgate’s (CLGT) EBITDA and PAT growth for 3QFY21 was ahead of estimates – led by the highest quarterly gross margin in the last 10 years and lower-than-expected depreciation. Meanwhile, sales and volume growth, currently in the mid-single digits, is yet to show signs of approaching an elevated trajectory. n As highlighted in our note in December, new launches appear promising of late. However, traction on these launches or entry into new categories is needed for the company to grow the topline and earnings above the low- to mid-single-digit CAGRs seen in the past five years. n In the meantime, a) healthy rural outlook for the next few quarters, especially in light of CLGT seeing 40% sales contribution from rural, b) the promise of traction in new products, and c) inexpensive valuations of 39.1x FY22E and 34.5x FY23E have led us to maintain our Buy rating on the stock.

Outlook

With a target multiple of 40x FY23E, we arrive at TP of INR1,810 – a 16% upside to CMP.

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