Reduce Colgate Palmolive; target of Rs 2373: Prabhudas Lilladher

Prabhudas Lilladher's research report on Colgate Palmolive

CLGT delivered ~2% volume growth and all time high EBIDTA margins of 35.9% led by lower opex. Rural is growing green shoots with 200bps higher growth than urban, in addition premium portfolio led by Total, Active salt, Sensitive and visible white grew 2x overall growth. CLGT indicated its intent to focus on 1) driving toothpaste category penetration and twice a day usage in urban India 2) premiumisation through science-based innovations with Total and Arginine based efficacy in Colgate strong teeth 3) build personal care portfolio in body/hand/face wash and 4) increasing usage of toothbrush by reducing the replacement cycle. Although CLGT showed its intent to increase launches and focus on personal care, we would watch out for concrete action there. We believe EBIDTA margins at 35.9% for 4Q and 33.5% for FY24 leave little scope of improvement and any serious attempt to grow out of oral care can bring it down from current levels.

Outlook

We factor in 4-5% volume growth and a CAGR of 7.5/7.1% for EBIDTA and PAT for FY25/26, as we increase EPS by 2.9%/3.7%. We value CLGT at 42x FY26 EPS (40x earlier) and assign a target of Rs2373 (Rs2174 earlier). CLGT trades at 47.3xFY26, which is at a premium of 3% to HUL, We recommend a switch from CLGT to HUL. Retain Reduce.