Comments
Motilal Oswal
Colgate Palmolive (Neutral)
Target: ₹1,700
CMP: ₹1579
Colgate Palmolive’s weak sales growth trend has persisted in recent quarters – the two-year average sales growth is in the 5–6 per cent range. It has now been six years since the company reported over 7 per cent sales growth for any year.
The cornerstones of our earlier optimism on improved topline growth were: new launches in oral care; a potentially higher play in naturals (38– 39 per cent of the category where Colgate was significantly under-indexed); and new launches in Non-Oral Care (only 2 per cent of sales currently v/s around half the sales for the parent) – leveraging on Colgate extensive distribution reach and the implementation of the ‘Brush Twice a Day’ campaign.
However, the company has either disappointed on these aspects or significantly postponed the same, contrary to our earlier assumptions. While there is no material change in our FY22 EPS, we reduce our FY23 EPS forecasts by nearly 6 per cent, weighed by weak sales trends and lower margins.
With weak topline and earnings growth likely to sustain going forward, the valuation at 37.6x FY23 EPS appears fair. We assign a value of 40x FY23 to arrive at our target price of ₹1,700/share. Downgrade to Neutral
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.