Reverse DCF
Colgate Palmolive (India): what the price is assuming
A normal DCF asks you to guess growth. Run backwards, it takes today's price and solves for the growth the market has already priced in — then you can judge whether this company can deliver it.
What the price assumes
Growth trapTo justify its price of ₹1797, this stock must grow earnings at 21% every year for 5 years. Our analysis caps realistic growth at ~3%. At that growth it is worth ₹806 — downside of 55%.
- Growth the price implies
- 21.0% a year
- for 5 years, fading to 4%
- It has actually compounded at
- 8.2% a year
- net profit, FY23–FY26 · EPS 8.2%
- The gap
- 0.2 pp
- -55% downside if it only repeats history
Why this baseline, and what it is built on
Colgate-Palmolive's financial performance shows a concerning trend, with the last three reported quarters (2025-Q1, Q2, Q3) exhibiting year-over-year declines in both sales and net profit, despite earlier strong growth. While management has a good promise track record ('new' and 'on_track' only) and provides positive guidance on margin maintenance, village reach, and premiumization growth, the recent negative financial results contradict these optimistic outlooks. A conservative initial growth rate of 3% is assigned, acknowledging the strong brand and potential for recovery, but heavily discounting aggressive growth targets until a clear turnaround is evident in the financials. The low leverage and stable industry support a lower discount rate, but recent performance dips reduce confidence.
- — Sales growth was strong (10-13%) until 2024-Q2, but declined YoY in 2025-Q1 (-1.81%), 2025-Q2 (-4.14%), and 2025-Q3 (-6.0%).
- — TTM Net Profit growth slowed significantly from 26.4% (ending 2024-Q1) to 8.5% (ending 2025-Q1), and recent quarters show YoY declines.
- — Promise track record: 2 'new', 3 'on_track', with no 'ghosted' or 'missed' promises.
- — Guidance includes maintaining EBITDA margins (32-34%), '2x the number of villages', and '4x premiumization growth'.
- — Balance sheet leverage (Borrowings/Reserves) is ~0.04.
- — Management notes 'urban (bottom 70%) demand will also pick up... particularly towards the back half of this year', implying current weakness.
Through 2025-12-31
Your assumptions
Change any of these and the value moves. A valuation that flips on a one-point change in the required return is telling you something.
Value on these assumptions
₹799.78
Against today's price
-56%
7 projected years, then a terminal value at 4.0%.
Normalized net profit is discounted as a proxy for owner earnings, not full free cash flow. An analytical tool, not investment advice.
How to read this valuation
- Start from the price, not the forecast. A normal DCF asks you to guess growth and hands back a fair value. Run backwards, it takes today's price and solves for the earnings growth the market is already assuming.
- Compare that with what the company has done. The historical profit and EPS CAGR sit beside the implied number. A price that needs 25% a year from a business that has compounded at 10% is asking a lot, and the gap is the risk you are taking on.
- Then apply your own view. Change the growth rate, how long it lasts, how it fades and the return you require. A valuation that flips on a one-point change in the discount rate is telling you something about itself.
- Mind the caveats. Normalized net profit stands in for owner earnings, not full free cash flow; terminal growth is capped at 6%, roughly nominal GDP; cyclicals are flagged because a peak-earnings base overstates value. This is an analytical tool, not investment advice.