Colgate-Palmolive (India) Ltd. share price target

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...

Colgate (CPIL) reported a dismal set of numbers with 7.4% decline in sales and 8% dip in volumes. The growth was largely impacted by 10 days loss of sales due to the lockdown in the country. The company maintained its gross margins at 64.6% in Q4FY20. However, employee expenses as percentage of sales was up 200 bps manly due to operating de-leverage. The company maintained its marketing spend at | 155 crore, which was 100 bps higher (percentage to sales) given decline in sales. CPIL did not withdraw media spend despite disruption at the end of quarter. Other overhead were lower...

respectively based on 1) Covid impact on production and sales in 1Q 2) 3) delay in opening of high focus modern trade in top cities. Mgt strategy is now centered on 1) gaining share in urban India with value added premium products (Bamboo Toothbrush, Charcoal Toothpaste and naturals segment...

Revenue for the standalone business improved by 4.1% YoY to Rs. 1,136cr in Q3FY20, with Domestic net sales growing 4.3% YoY pulled down by a lackluster growth in volumes (+2.3% YoY). We believe that a reversal of slowdown in rural sales is essential for a topline turnaround. To tackle the rising competition and adverse market conditions, the company increased its advertising and promotional expenditure by 13.8% YoY and employee expenses by 8.4% YoY. This additional expenditure resulted in the EBITDA margins contracting by 100 bps to 27.8%. Net Profit grew 3.6% YoY to Rs. 199cr primarily aided by lower taxes (-23.8% YoY to Rs. 68cr). Adjusting for the...

Colgate's market share has largely stabilized but we still don't see signs of gaining meaningful share anytime soon. As a category leader, Colgate needs to drive category growth at a time when natural's fad is again gaining traction. Senior level management churn (Ram Raghavan - MD and Mukul Deoras India chairman) keeps us interested in the story. Ram began his career as a management trainee with Colgate India in 1997. His recent experience as the head of innovation center at Colgate-Palmolive LATAM is exactly what Colgate India needs i.e. product excitement and diversification. We remain NEUTRAL on the company. We will be tracking any revamp in strategy that may trigger our upgrade. Colgates 3Q performance remained weak as net revenue grew by mere 4% (est 4.5%) with 2.3% volume growth (est 3.5%). The co has underperformed most other FMCG cos over the last 12/18 quarters with revenue CAGR of 5/4%. Oral care category was under pressure in urban as well rural markets. EBITDA growth was flat/1.4% in 3Q/9MFY20. We cut EPS by ~3% in FY20/21/22 to factor slower than expected recovery. We value Colgate on 35x P/E on Dec-21 EPS, our TP is Rs 1,392. Maintain NEUTRAL.

High penetration of oral care category curbing growth Over the years, CPIL has remained a market leader in the oral care category with 50% market share. However, the category has been saturated with ~88% penetration levels. Moreover, intense competition in the herbal space has taken away first mover opportunity in that space. Moreover, the company has not pursued aggressive expansion in the personal care category. This makes CPIL a large player only present in single saturated category and, hence, poses limited growth opportunity for the company. We...