Hold Colgate Palmolive India; target of Rs 1150: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's research report on Colgate Palmolive India

With the rollout of GST and tax clarity on the toothpaste category, Colgate-Palmolive (CPIL) has emerged as one of the major beneficiaries of GST among companies under our coverage. Under the new tax regime, the average indirect tax rate for toothpaste has come down to 18% from ~23-24%. Following the anti-profiteering clause, we were expecting price cuts to the tune of ~6-7% for the category. However, CPIL has intimated distributors about the cut across price points in the tune of 7-11% in both toothpaste and toothbrush segments, which we believe is aided by additional input tax benefits. In our view,it levels the playing field for CPIL  as well as providing it a competitive advantage vis-à-vis other key players  who enjoy various tax benefits on account of their ayurvedic proposition,  as they will be unable to undertake price cuts in similar fashion. Though, we remain positive on the company, due to recent run up in the stock, we maintain HOLD on the stock with a revised target price of | 1150.

Outlook
CPIL is the largest player in oral care in India with a market share of 55.6% in toothpaste and 47.3% in toothbrush category for CY16. Though with the entry of Patanjali, CPIL’s lost ~180 bps market share in the past year in the toothpaste category, we believe CPIL has an edge over its indigenous rival in the form of strong brand equity along with a vast distribution network of over 5.8 million outlets. We remain positive on the company from a long term outlook and also revise our estimates upwards for FY19E. However, on account of the recent run-up in the stock, we maintain our HOLD recommendation on the stock with a revised target price of | 1150/share valuing the stock at 40x its FY19E EPS of | 28.7.
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