Prabhudas Lilladher's research report on Colgate Palmolive
CLGT’s 3Q results show positive volume growth, 72% gross margins and 33.6% EBIDTA margins resulting in a beat at PAT level. CLGT re-launched Max Fresh gel and also launched campaign to promote twice a day brushing. 3Q ad-spend at 14.6% are all time high. We estimate that 3Q volumes are 2% lower than 3QFY22 levels and just 1% higher than 3QFY21 levels. CLGT continues to focus on 1) driving toothpaste category penetration and twice a day usage 2) premiumisation through science-based innovations with Total and Colgate strong teeth and 3) build personal care portfolio in body/hand wash. CLGT has launched premium products (Total Sensitive Toothpaste, CLGT water flosser, Visible white O2 TP & Whitening Pen and Colgate Periogard Toothpaste), their contribution remains limited. Although toothpaste volumes have turned positive, volume growth for FY25/26 is unlikely to beat our estimates of 4-5%. Gross margin at 72% are at a new high led by higher prices and low RM, sustaining margins at current levels looks challenge in the long term.
Outlook
We estimate 7.7/7.8% CAGR in sales and PAT over FY24-26 as we increase FY24 EPS by 0.5% but cut EPS by 0.2% and 0.6% for FY25-26. We value CLGT at 40x FY26 EPS and assign a target of Rs2170 (Rs2140 based on 40x Dec25 earlier). Retain reduce.
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