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Double digit sales growth YoY: Colgate Palmolive India reported double digit sales growth of 10.6% YoY led by domestic growth of 12.3% YoY while QoQ growth was muted and declined by 2% QoQ to Rs 1,323.7cr. Further, the YoY growth was driven by the toothpaste category which recorded higher double digit growth. The company is seeing signs of recovery from rural areas as well as focus on launching products with science based technology will continue to aid growth.

Margins saw healthy improvement YoY: Gross profit improved by 14.1% YoY and 0.3% QoQ to Rs 9055.8cr led by softening of raw material cost and healthy domestic revenue growth. Thus, gross margin improved by 210.7bps YoY and 156.1 QoQ to 68.4% in Q1FY24. Further, EBITDA increased by 28.4% YoY to Rs 418.1cr while was down by 7.5% QoQ, also margins saw mixed trend with increase by 437.6bps YoY to 31.6% but decrease of 187.1bps QoQ. Margins impacted QoQ largely because of a rise in spends on advertisements by 26.9% to Rs 181.3cr which is ~13.7% of total revenue.

Mixed growth for PAT: The company reported an exceptional expense of Rs 19.5cr related to certain structure changes excluding that PAT grew by 33.9% YoY with margins at 22.1%. Reported PAT came in at Rs 273.7cr, up by 30.5% YoY with improvement in margins by 315.7bps while sequentially it saw a de-growth of 13.5% QoQ with decrease in margins by 273.7bps due to high advertisement cost and muted revenue growth QoQ.

Key highlights: 1) Rural is seeing signs of recovery. 2) Innovation continued during the quarter with a) Colgate Strong Teeth was re-launched with an improved formula and new communication, b) Also launched Colgate India’s first ever Whitening pen with their Dentist partners. 3) Exceptional item of Rs 19.5cr for severance and related expenses with respect to certain organization structure changes.

Outlook & Valuation: Colgate continues to be the leader in the oral care segment and going forward its strategy is to drive growth by investing in core, driving premiumization and innovation in the oral care segment and building Palmolive portfolio. In addition, using science based technology for products, support from its parent and focus on increasing brand recall value by spending on advertisements bodes well. We remain positive on the growth prospects and have estimated its Revenue/EBITDA/PAT to grow at a 6.7%/10.3%/10.8% CAGR of FY23-25E and are revising our rating to Accumulate from Buy earlier but maintaining the same target price of Rs 2,126.

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