Hold Colgate Palmolive; target of Rs 2242: Prabhudas Lilladher

Prabhudas Lilladher's research report on Colgate Palmolive

CLGT Analyst meet gave a steady outlook led by 1) Continued strength in the premium segment (Colgate Total, Visible white purple and Periogard) with higher growth and superior margins 2) pick up in urban growth, faster than rural growth 3) Early double digit penetration in E comm which is margin (400bps higher than company’s average) & growth accretive and 4) favorable trends like lower incidence of brushing twice/ daily brushing in rural and longer toothbrush replacement cycle. While we expect premium segments to sustain strong growth, Sensodyne's foray into whitening segment can increase segment competition. CLGT continues to focus on 1) Lifting twice-a-day toothpaste usage penetration from current levels of 24% 2) Increasing once-a-day brushing penetration in rural India from current levels of 55% 3) higher growth in premium segment through superior products such as Colgate Total, Visible White Purple, and Periogard and 4) Higher penetration in E comm/QC (~400bps margin accretive).

Outlook

We expect volume growth to settle in mid-single digits; however higher A&P spends will limit any significant margin expansion. Given low base we expect double digit PAT growth for better part of FY27. We estimate 9.0% EPS CAGR over FY26-28. We value CLGT at 38x March’28 EPS and assign a target of Rs2,242. Although growth rate is uninspiring, valuations at 33xFY28 are inexpensive. Retain Hold.