Neutral Colgate; target of Rs 2020 : Motilal Oswal

Motilal Oswal's research report on Colgate

CLGT reported better-than-expected operating performance, driven by favorable pricing strategies and increased efficiencies. However, the toothpaste category volume growth has been flattish or marginally lower YoY in 2QFY24. CLGT gross profit margin is high in the last nine quarters, reaching 68.8% (est. 68.3%), although it is expected to decrease in 2HFY24. Furthermore, the higher ad-spends (up 260bp YoY) on re-launching campaign was offset by lower other expenses, resulting in a notable 340bp improvement in EBITDA margin. The company will continue to focus on innovation, productivity, and premiumization to revive growth. With a cautious near-term outlook on demand, we reiterate our Neutral rating on the stock.

Outlook

Given the likelihood of continued weak topline and earnings growth in the future, it is unlikely that the stock will undergo a re-rating. We maintain Neutral with a TP of INR2,020 (target multiple of 40x FY25E EPS, close to five-year average).