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Buy Colgate-Palmolive Ltd CMP: Rs 1657 | Target: Rs 1848 (12%)| SL: Rs 1541

Colgate-Palmolive (India) Ltd is the fastest growing and one of the oldest company catering to the personal care products. The product range of the company can be broadly classified into Oral care-Under this segment the company offers product like toothpastes, toothbrush, tooth powder & tooth whitening products, Personal care. The company has launched a new lineof products for the Dentists - under which it provides products like Gingivitis Treatment, Colgate Sensitive treatment, Tooth Whitening, Fluoride Therapy, Mouth Ulcer Treatment & Specialty Cleaning.

Investment Rationale

? Forayed into Face Care Products, Aims to Diversify Revenue Stream: India’s Face Skin Care market is US $4.37 Bn in 2022 (S: Statista). And is expected to grow at 3.87% CAGR during 2022-27. Company forayed in this large market with its new brand named as “Palmolive” which offers products in Cleansers, scrub, masques category. Face Care market is Monopolistic in competition as each Player has selective marketing strategy. Colpal has established its strong brand presence through Colgate brand and its robust distribution network to help promoting its “Palmolive” brand. New forayed venture to provide new growth engine for revenue.

? Value Addition on Existing products for Maximizing Revenue : In India, Colpal’s products are used in 7 out of 10 Household. It has product offerings across oral care ecosystem, Revenue Maximization through value addition is key strategy implemented by colpal, through this its has touched upon various stream in toothpaste such as Natural ingredients, Sensitivity, Diabetics, etc. Its toothbrush also has 70% more market share than #2 brand in India, Thus, Economical to premium offerings helps to ensure complete presence in oral care system.

? Below Median earning multiples offering Attractive entry: Colpal is trading at TTM earnings multiple of 42.1 (lower than 10 yr Median of 44). As we backtest, historically, Colpal has outperformed Nifty FMCG whenever traded below its 10 yr Median earnings maultiple. EV/EBITDA (x) trading at 27.9 , discount to 10 yr median of 30(x). We recommend buy considering the combination of below average valuations and progressive diversification in revenue.

? Outlook and Valuations: We estimate a 5% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 36.8 for FY 25E earnings. We value it with a earnings multiple of 41x (10 yr Median) to FY25 earnings estimate which results per share value of Rs 1848. We recommend BUY on COLPAL at CMP of Rs. 1657 with Target price of Rs. 1848 (12%).

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