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On Tuesday, Phillip Securities began covering Colgate-Palmolive (NYSE:CL) India (CLGT:IN) with a Neutral rating and set a price target of INR 3,000.00. The research firm's assessment acknowledges Colgate's commanding presence as the market leader in India's US$ 2 billion oral care sector, benefiting from large scale operations and superior economics. The company's focus on science-based products and a strategy aimed at premiumization is considered sensible.
Colgate-Palmolive India's potential for growth is also seen in its toothpaste adjacent products, such as toothbrushes and mouthwash, as well as its Palmolive brand. These segments are expected to scale up and contribute to the company's growth. Phillip Securities notes that the company's industry-leading advertising and promotion (A&P) spending is poised to support high single-digit revenue growth structurally and could lead to a gradual margin expansion.
Nevertheless, the research firm points out that the oral care category in India is already well-penetrated, which could limit the upside for Colgate. Furthermore, increased trade promotions, which are a response to a slowdown in consumption, are likely to keep margins under pressure in the short term. Despite the recent correction in the stock price, which now appears to be fairly valued, Phillip Securities highlights a lack of growth momentum for Colgate-Palmolive India.
The target price of INR 3,000 is based on a two-year forward price-to-earnings (PE) ratio of 46 times, which is 10% below the company's recent peak valuation. This valuation reflects the firm's cautious optimism about the company's ability to navigate through current market challenges while leveraging its strong market position.
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