Hold Colgate Palmolive; target of Rs 1869: Prabhudas Lilladher

Prabhudas Lilladher's research report on Colgate Palmolive

We increase FY24/25 EPS by 7.3%/5.2% factoring 1) higher volume growth due to resilient demand in urban India & green shoots in rural demand, 2) low base effect (5 consecutive quarters of volume decline) and 3) benefits of benign raw material, prices. CLGT reported ~4.3% volume growth led by strong traction in premium segments and benefits of re-launch of Colgate Strong Teeth. CLGT continues to offer superior science backed products and push the envelope to grow the category supported by healthy ad spends. On an indexed basis, we estimate that Colgate has regained the volume it lost and has crossed 1QFY20 numbers this quarter. We expect pricing impact to wane gradually while benign RM and low to mid-single volume growth will enable mid to high teens profit growth for coming couple of quarters.

Outlook

We estimate 7.8% sales and 12.6% PAT CAGR over FY23-25. We value CLGT at 38x Mar’25 EPS and assign a target of Rs1869 (earlier Rs1636 on 35xMar’25 EPS) with 2.3% Dividend yield, 90% payout and ~90% ROCE. Retain Hold.