Reduce Colgate-Palmolive; target of Rs 1507: Dolat Capital Market

Dolat Capital Market's research report on Colgate-Palmolive

Colgate's Q2FY21 results were ahead of our expectation on all parameters. Domestic business posted 7% sales growth during Q2. All categories witnessed positive growth driven by household penetration. A 540bps increase in EBITDA margin was a key positive. A&P spends reduced significantly, in line with lower spends of the peers. We believe that the A&P spends would increase gradually to support volume growth. This would restrict margin expansion. Going ahead, government efforts to increase farmer's wages and focus on rural infrastructure should boost oral care category. However, increase in competition and better product offerings by competitors like Dabur remains a key challenge for Colgate.

Outlook

We have revised our FY21E and FY22E EPS to Rs 35.0 (+7.8%) and Rs 35.8 (+5.9%), respectively to factor in Q2FY21 performance and introduced FY23E EPS at Rs 39.7. We value the stock at 38x FY23 EPS to arrive at a TP of Rs 1,507. Maintain Reduce.

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