Prabhudas Lilladher has given Accumulate recommendation for Colgate Palmolive with a target price of Rs. 1733 in its research report issued on Jan 28, 2022

Prabhudas Lilladher’s research report on Colgate Palmolive

We are cutting EPS estimates by 0.7%/1.8%/0.7% for FY22/FY23/FY24 on the back of 1) Increased Input cost inflation and 2) Low volume growth expected in 4Q22 given large base in 4Q21 and rural slowdown and 3) Flattish EBIDTA margins over FY21-24 post sharp 460bps gains in FY21. Premiumisation trend continues with Colgate Total, Sensitive and Charcoal growing faster than overall growth. We believe slow rural demand and higher promotions are here to stay which along with volatile input costs are a risk to margins in the near term. CLGT is focusing on accelerating growth led by 1) Ramping up innovations (launched Colgate Gum Expert) 2) Increasing promotion intensity to drive volumes 3) entered premium Face Cleansing Category (foams, scrubs and masques) under Palmolive brand.

Outlook

We estimate 8.2% Sales CAGR and 8.1% PAT CAGR over FY21-24. Although growth is unexciting, favorable financial parameters (32.3x/29x FY23/FY24PE,2.6% Dividend yield, 90%+ payout and ROE) limit downside. We value CLGT at 37x Dec’23EPS and assign a Target of Rs 1733 (Rs 1852 earlier, 40xSept23 EPS). Retain Accumulate.

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