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We recently participated in the Analyst/Investor Meet held by Colgate-Palmolive (India) Ltd. (CLGT). The management reiterated the opportunity, strategic pillars, enablers and current state of the business as well as elaborately showcased their innovations, sustainable practices and scientific advancements. Key takeaways: 1) Market shares remain stable, 2) CLGT remains confident on opportunity in core categories while continuing to stay hopeful on Palmolive, 3) Gross margins to modestly move up from current levels, 4) Focus on science-backed and technologically advanced products will continue to drive strong premiumization across the portfolio. There is no revision to our FY24E/FY25E EPS. We continue to assign ~41x on March’2025E EPS for CLGT (3yr/5yr avg fwd. multiple: ~40x), giving us an unchanged target price (TP) of Rs2,000. Maintain NEUTRAL.

Latest performance: Share stable but CLGT has done well on margins

There was an improvement in domestic net sales growth trajectory to 12.3% in 1QFY24 on the back of relaunch of flagship brand and low base. Market share was stable in 1QFY24. Gross margins for the quarter stood at 68.2% strengthened by pricing and softening of input costs. Company believes it has done very well on margin in recent times helped by funding the growth program (which looks to take cost out of the system) and revenue growth management program (pricing and promo efficiencies). It expects to stay at current levels in the near term and will modestly move up in the medium term. EBITDA margin performance has been a bit more variable as it depends on A&SP investments.

Category growth recovering

Recovery seen in toothpaste category volume growth led by urban, per Nielsen. Company is seeing green shoots in certain rural markets as well and is hopeful that this would continue. Toothbrush category has been impacted higher in recent times as it is sensitive to inflation.

Remains confident on core category opportunity

Company remained confident on the category volume growth opportunity which will be driven by increase in brushing occasions in both urban (only 20% of the urban households brush twice a day) and rural (55% of rural households still do not brush daily) markets. The core categories also poses huge premiumization opportunity (~86% of toothpaste category is still below 110 ASP Index while 78% of toothbrush category are under Rs 40).

Continue to remain hopeful on Palmolive

Personal care will be a strategic bet for CLGT. There are around 67+ brands in the category but CLGT will focus on Body Wash & Hand Wash through Palmolive as it believes that heart of the brand sits in cleansing. Body wash is a nascent category and there is a huge scope to grow through penetration itself. Body Wash category growth is 3x faster than beauty & personal care category growth and is predicted to reach ~Rs10bn in the next 2 years (Source: 2021-26 5yr CAGR basis Euromonitor BPC Report). CLGT also has a Wide Global Portfolio to choose from and it will keep them in its raider.

Focus on science-backed and technologicaly advanced products to drive premiumization

Company will make sure that investments does not coming in the way of growth. Focus of the company will be on segments which are premium. 1 in every 2 consumers sits in Sec A & B and hence offers enough audience for premiumization. Unlike the core base portfolio, the company is not looking for access packs for premium products. Company has a made a decision to step out of bundling activities as it dilutes the category. Ayurvedic segment is plateauing since consumers are not finding value and benefits. The company is focusing on science-backed products to offer better value to consumers.

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