PL Stock Report: Colgate Palmolive (CLGT IN) - Analyst Meet Update - Premium push to playout in LT only - HOLD

Colgate Palmolive (CLGT IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs1,940 | TP: Rs1,869

Analyst Meet Update - Premium push to playout in LT only

CLGT’s Analyst Meet 2023 largely focused on the growth opportunities in the oral care category and resolve to grow personal care franchisee under Palmolive brand, although no specific details beyond hand and body wash has been shared. CLGT’s reiterated four growth pillars as 1) lead toothpaste category growth 2) premiumization through science-based innovations 3) lead category growth in toothbrush & devices and 4) build personal care portfolio in body/hand wash. CLGT is looking at 1) premiumization in toothpastes with 14% above 110 ASP 2) support brands with increased ASP and 3) increase presence in personal care (face & hand wash).

We believe launch of premium products like Total Sensitive Toothpaste, CLGT water flosser, Visible white O2 TP & Whitening Pen and Colgate Periogard Toothpaste will benefit in long term only. We estimate Sales/PAT CAGR of 7.8%/12.6% over FY23-25. We believe favorable financial parameters (38.7x Jun’25 EPS, 2.2% dividend yield, 85%+ payout and ~90% ROCE) limit downside. Retain Hold with target price of Rs1869 (38x Mar25 EPS).

Green shoots in category: CLGT aspires to drive growth in toothpaste volumes through consumer education and increased frequency of brushing in urban & rural markets. 55% of rural households don’t brush daily while only 20% of urban households brush twice a day. The category has seen a recovery in volumes with green shoots seen in rural consumption. Our indexed volume calculation shows that 1QFY24 volumes (up 4.3%) are at the same level as that of 1Q20, showing tepid growth for the company in past few years.

Premiumisation & science-based innovations in oral care: CLGT is banking on driving premiumisation as 1) 86% of toothpastes sell for less than Rs110 2) 78% of toothbrushes sell for less than Rs40 with replacement of 6/15 months in urban & rural India and 3) new innovations in whitening toothpaste (triple digit growth on low base), battery operated devices etc. CLGT is launching Total sensitive toothpaste and has launched battery operated floss & visible white O2 to drive premiumisation while volumes will be driven by Strong teeth, Total, Max Fresh and Active Salt.

Key Highlights: 1) 1Q sales growth of 12.3% was a combination of soft base quarter, internal efforts & new launches. 2) Improvement in consumer brushing behavior is a slow process which will be promoted through ‘Bright Smiles Bright Future program’ 3) Toothpaste market share has been stable 4) 14% of toothpastes are above 110 ASP Index (vs 25% for other personal care categories) 5) Colgate MaxFresh is growing 2x vs market while whitening range of products are growing in triple digits 6) Colgate endeavors to grow body wash/hand wash under Palmolive brand faster than company average given just 2% penetration 7) To make Palmolive products available at the right set of stores with a mix of products 8) Gross margins are expected to be at current levels while EBITDA margins may move up/down depending on ad spends 9) Margin expansion has been supported by better sourcing, formulation changes and improved packaging 10) Ayurvedic toothpaste sales continues to plateau as consumers enjoy benefits through Colgate’s core products which are science backed platforms

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