Buy Colgate Palmolive (India) Ltd For Target Rs. 2,878 - Sushil Finance
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CONTINUED INNOVATION AND PREMIUMISATION TO ENSURE THE COMPANY’S GROWTH DRIVER.
Colgate continues to increase its focus towards science-backed innovation for its products. The company focuses on innovation in the personal care segment specifically the oral care segment. The company’s constant efforts to increase brand recall and market leadership position enables them to improve its market share in the industry. Colgate has thus launched a number of products in line with evolving needs and preferences of consumers. The company has increased its focus on premiumisation which will result in increase in ASP. Of the total customer base, 86% of toothpaste category is below Rs.110 ASP and for Brush 78% is below Rs.40 ASP. The company also focuses on improving the oral care habits through advertising resulting in improvement in top line and bottom line of the company. The launch of these products is complemented by the existing distribution network of over 1.7 million kirana stores (95% active) acrossthe country.
HEALTHY FINANCIAL PROFILE ENABLES THE COMPANY TO STRONG ARM ANY ADVERSE MARKET TAILWINDS.
During the four years ending March 31, 2023, the company’s turnover has grown at a CAGR of ~5% along with considerable margin expansion. The company continues to be debt free and generated free cash flow to the tune of ~Rs 1,114 Cr in FY23.
OUTLOOK & VALUATION
The company has launched a number of products in FY23 & FY24 and the same have gain traction during H1FY24. Owing to the recovery in the industry and increased traction in the business of the company, we have forecasted annual sales growth of 7%, 5% and 6% in FY24E, FY25E and FY26E derived a revenue of Rs. 6,228.2 cr for FY26E. We expect the PAT margins to remain in the range of 22%-23% through FY24E to FY26E and EPS of Rs. 52.1 in FY26E. As we assign a P/E multiple of ~55X we arrive at a price target of Rs. 2,878 which gives us an upside of ~20% from CMP of Rs. 2,395. Hence, we re-instate coverage on Colgate Palmolive (India) Ltd with a BUY rating over an investment horizon of 24-30 months.
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Member : BSE/ NSE/ MSEI.
SEBI Registration No.-INZ000165135.
