Colgate-Palmolive (India) Ltd. share price target

We maintain BUY and TP of Rs. 1,565 as we value the stock at 38x its FY23E EPS.

We initiate coverage on Colgate Palmolive (India) Ltd. (CLGT) with a BUY recommendation and a Target Price of Rs. 1,565, which implies 15% upside from current levels.

Proven the resilient performance for the quarter and an attractive market share recovery in near-term, we retain BUY rating on the stock with a revised target price of Rs. 1,770 based on 50x FY22E adj. EPS. Exceptional brand image benefiting revenue despite pandemic The standalone business revenue showed a dip of 3.9% YoY to Rs. 1,034cr in Q1FY21 as sales volumes remained stagnant YoY, majorly impacted by a fall in toothbrush and body wash segment. Disrupted supply and distribution also added to the decline in revenue. On the contrary, toothpaste segment showed resilience in maintaining its...

In the last five years, CPIL has lost market share in toothpaste category with consumer preferences shifting toward Ayurveda & Natural brands. Though market share has stabilised after launch of Ved Shakti, we believe gaining market share would not be easy given overall toothpaste category has been growing at a snail's pace. The company has been putting efforts to drive growth through large scale campaigns & innovations. It has launched Palmolive hand sanitisers & Colgate gentle toothbrushes in Q1. We believe the company would be only able to drive volume through Colgate Vedshakti...

While the company did not give out market share for 1QFY21, we believe the flattish volumes indicate good performance under in 1QFY21 to INR10.4b (v/s est. We arrive at a TP of INR1,660/share (target multiple of 43x Jun22E EPS, based A combination of the sharp market share decline in recent years and increased penetration of the category itself has meant single-digit top line growth over the last 10 years. Due to the market share decline in recent years, sales/EBITDA/PAT was even lower over the past 5 years at ~3%/~8%/~8% CAGR. Importantly, the company does not need any material on CLGT from a one-year perspective given that (a) the nature of the category (98% of sales from oral care) offers less uncertainty currently, (b) it has amongst the best-of-breed balance sheets, (c) valuations are moderate at 39.5x FY22E EPS, close to its 10-year average, and (d) there is a spark of an incipient market share recovery under the new Managing Director.

We are increasing FY21,22,23 EPS estimates of CLGT by 8.2%, 5.7% and 4.8% led by 1) lower volume decline of 6% in toothpaste, and largely normal production now 2) Trade inventory buildup in June which continues in 2Q as well 3) superior on shelf availability relative to Patanjali, Vicco and other...