Hold Colgate Palmolive; target of Rs 1948: Prabhudas Lilladher

Prabhudas Lilladher's research report on Colgate Palmolive

CLGT’s 2Q results are in line with 3% volume growth, 18% EBIDTA growth and 22.3% PAT growth led by 500bps higher gross margins partly neutralized by 260bps higher ad-spends. Our estimates indicate that 2Q indexed volumes are up by just 6.5% over FY20-24 and current volume growth is driven by low base of 5 consecutive negative volume quarters before 1Q24. CLGT continues to focus on 1) driving toothpaste category penetration and usage 2) premiumisation through science-based innovations with Total and Colgate strong teeth and 3) build personal care portfolio in body/hand wash. While CLGT is launching premium products (Total Sensitive Toothpaste, CLGT water flosser, Visible white O2 TP & Whitening Pen and Colgate Periogard Toothpaste), their contribution will remain limited in medium term. While resilient urban demand, low base and benign inputs will enable strong growth in FY24, sustaining double digit PAT growth beyond FY24 looks challenging but for significant pick up in rural demand.

Outlook

We estimate 8.0% sales and 11% PAT CAGR over FY23-26. We value CLGT at 38x Sep’25 EPS and assign a target of Rs1948 (Rs1869 earlier). Re-rating potential seems capped post recent run up in stock price. Retain Hold.