Hold Colgate Palmolive; target of Rs 1636: Prabhudas Lilladher

Prabhudas Lilladher recommended hold rating on Colgate Palmolive with a target price of Rs 1636 in its research report dated May 12, 2023.

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May 15, 2023 / 13:07 IST

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Prabhudas Lilladher's research report on Colgate Palmolive

We increase FY24/25 EPS by 2.8%/1.9% factoring 1) benign to moderating RM basket and 2) lower ad spends vs pre COVID levels. CLGT continues to report pressure with est 1.5% decline in volumes in a competitive & highly penetrated core category of oral care. However, as a category leader, CLGT continues to offer superior science backed products and push the envelope to grow the category. We believe EBITDA margins have scope to bounce back given benign RM trends and price hikes taken over the course of FY23. Colgate remains focused on low growth oral care segment across price points, which we believe will curtail overall growth. Although CLGT is indicating renewed focus on growing personal care segment under Palmolive, the impact is unlikely to be material in near to medium term.

Outlook

We estimate 7.7% Sales and 9.8% PAT CAGR over FY23-25. Resurgence of rural demand, new launches in oral/personal care and category growth hold key to valuations. Although CLGT’s growth is unexciting, favourable financial parameters (2.5% Dividend yield, 90%+ payout and ~85% ROCE) limit downside. We value CLGT at 35x Mar’25 EPS and assign a Target of Rs1636 (earlier Rs 1565 on 35xDec’24 EPS). Retain Hold.

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