Prabhudas Lilladher's research report on Colgate Palmolive
We cut FY23/24/FY25 EPS by 0.6%/1.4%/0.1% factoring 1) lower volume growth given tepid demand, 2) increase in ad spends, promotional intensity and 3) higher tax rates in FY23/24. CLGT reported tepid numbers with 3% decline in volumes and sustained competitive activity in core category of oral care. Demand trends remain tepid with even urban demand declining QoQ. We believe margins have bottomed out given flattish RM trends and benefits of ~3% price hike in the portfolio. Colgate remains focused on low growth oral care segment across price points, which we believe will curtail overall growth. We see limited focus on high growth personal care which has much higher penetration opportunities. We estimate 7.7% Sales and 10.6% PAT CAGR over FY23-25 assuming 4.7% decline in FY23 EPS. Revival in rural demand and new launches in personal care hold key to valuations.
Although CLGT’s growth is unexciting, favourable financial parameters (2.5% Dividend yield, 90%+ payout and ~80% ROCE) limit downside. We value CLGT at 35x Dec’24 EPS and assign a Target of Rs 1578 (earlier Rs 1639 on 37xSep’24 EPS). Hold.