Motilal Oswal has given Neutral recommendation for Colgate with a target price of Rs. 1690 in its research report issued on Oct 25, 2021

Motilal Oswal’s research report on Colgate

CLGT’s 2QFY22 result was in line with our estimates. Two-year average sales growth, at 5.2% in 2QFY22, continues to remain in the 4-6% range seen in recent quarters, with little indication of an improvement, despite consistent advertising spends. With: a) the launch of the Non-Oral Care portfolio, and b) investments under the ‘brush twice a day’ campaign seemingly on the back burner, it is unlikely to return to double-digit sales growth seen over FY08–15 anytime soon. We maintain our Neutral view on weak topline growth, rising material cost pressures, and limited scope for price hikes. There is no evidence that the company is regaining lost market share in the core Oral Care business. At 13.7% of 2QFY22 sales, advertising spend increased by 15.7% sequentially, which we believe needs to sustain over a longer period of time to revive sales growth.

Outlook

We had downgraded the stock to Neutral post its 4QFY21 result. While valuations at 38.4x FY23E EPS may appear inexpensive v/s its Staples and Discretionary peers, mid-single-digit PBT and PAT CAGR do not warrant a change in our view. We maintain our Neutral rating.

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