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Colgate India hosted its ‘Brands Day’, where it showcased its capability in Oral Care that resonates in its category leadership spot. Of the 15 walk-through sessions (for highlighting brand positioning and efficacy of offerings), one distinct aspect was that Colgate is looking to improve consumer awareness on dental issues and premiumizing the category. The missing link though was its strategy for the rural market, of persuading 55% of consumers to brush daily. Mgmt emphasized its efforts to develop the category, but we see actions have been centered on uptrading consumers. We believe the Q1FY24 double-digit sales growth is owing to the low base (other players also gained) and product relaunches. Growth is likely to see moderation. We maintain SELL with Jun-24E TP of Rs1,720, on 35x PER (10% discount to 10Y historical fwd avg PER of 38x).

Focus remains on premiumizing the category

Colgate’s effort has been to premiumize Oral Care with science-backed innovations in the category. While the company has expanded its premium range in the whitening space, it has also enhanced its base offerings like Colgate Strong Teeth upgraded with Arginine technology. Management noted that the premium consumer base has expanded over the years, given that ~52% of India’s population (~700mn) is residing in SEC A & B. With the premium offering, its thrust is on consumers who have the ability & propensity to spend. Only 14% of the category is now categorized as premium, relatively lower vs other personal care segments, where it will look at affordable packs, at scale.

Healthy margin positive, but weak topline remains a concern; maintain SELL

Regarding the Q1FY24 topline acceleration (+12% YoY), Mgmt noted influence of a low base and re-launches. Growth ahead is likely to see moderation to a single digit. On category growth, Mgmt noted the slow shift in consumer behavior. We see steady expansion in the gross-margin profile, with thrust on improving the sales mix. Looking at the strategy so far, we see margin remaining a key lever for earnings growth. With healthy business margin, we believe Company should look to diversify revenue, taking products from the parent portfolio to India. We maintain our estimates and Jun-24E TP of Rs1,720/share, on 35x PER (10% discount to its last 10Y historical avg fwd PER); maintain SELL

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