Cmp-1950
Target-2340
Potential Upside 20.51%

Technical View

• We feel valuation of only 33x FY25E, free cash flow yield 3% , dividend yield 2.5% is very cheap considering that with the MD, Prabha coming in , tides have completely changed for the company. Premiumization in oral care business, sharp focus on volume led growth, fully leveraging the Palmolive barnd which has 67% awareness and sustained inflow of products from parent company, annuity sustainable nature of business and 100% ROCE , due to these factors we feel that this business can be given 42x and hence target of Rs 2350
  
  
• With the new MD Prabha narasimhan coming in with loads of experience (ex hul head in beauty and personal care segment) we expect the tables have turned for the company.
  
  
• The major reason for the relatively cheaper valuations vs it’s peers was missing of growth. With the new management we feel that now the company is looking for good growth in coming years by following various measures
  
  
• the ‘palmolive’ brand which has products like shower jell, hair wash, hand wash etc has 67% awareness currently and  according to the new management this business is likely to grow at double the rate than the oral care business
  
  
• The company is considering relevant opportunities from the global portfolio which can be introduced in Indian markets which according to us is a major possitive
  
  
• Premiumization of products gives very good margins to the company. 14% of its oral care portfolio and 25% of its personal care portfolio consists of premium products
  
  
• Colgate has also launched its first ever whitening pen . This is a oral beauty product . It’s a revolutionary at home whitening of teeth . In India oral beauty has just 1% penetration vs 43% in the US.
  
  
• 80% of the urban is not brushing twice and 55% of rural don’t use toothpaste daily which implies huge growth opportunity in oral care by conducting awareness programs