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Revenue growth tad better than expectation: Colgate Palmolive India reported single digit sales growth of 6.1% YoY led by domestic sales growth of 6.6% YoY while sequentially the company’s revenue grew by 11.1%. The growth was led by its toothpaste segment which witnessed higher single-digit growth.

Robust improvement on margin: Colgate’s Q2FY24 gross profit grew by 14.4% YoY and 11.7% QoQ to Rs 1,011.7cr with improvement in margin by 502bps YoY and 34bps QoQ to 68.8% led by moderation of raw material prices. Despite significant increase in advertising expense by 30.2% YoY and 13.6% QoQ, EBITDA too saw healthy growth of 18.2% YoY and 15.3% QoQ to Rs 482.1cr with margin at 32.8%, which improved by 337bps YoY and 119bps QoQ. Further, the robust improvement was because of operating efficiency measures taken by the company as well as decline in other expenses. Further, PAT grew by 22.3% YoY and 24.3% QoQ to Rs 340.1cr with increase in margins by 308bps YoY and 244bps to 23.1%.

Strong 1HFY24 performance: In 1HFY24, its revenue grew by 8.1% YoY to Rs 2,794.8cr led by growth in toothpaste category. On profit & margins, Gross profit grew by 14.2% YoY with improvement of 367bps on gross margin which came in at 68.6% as raw material expense declined by 3.2% YoY in 1HFY24. Further, Its EBITDA grew by 22.7% YoY with margin at 32.3%, an increase of 382bps YoY because of operating efficiency and overall expense just increased by 2% YoY. Moreover, in 1HFY24, PAT & PAT margin grew by 25.8% and 309bps as compared to 1HFY23.

Key highlights: 1) The company has relaunched Colgate strong teeth toothpaste and is focused on expanding reach and availability. 2) Also, in toothpaste it relaunched Colgate Max fresh with proprietary freshness technology. 3) In the toothbrush category, they have restaged Colgate Zig Zag with focus on its core purpose of deep and interdental cleaning. 4) The Board has declared a First Interim Dividend of Rs.22/equity share of face value of Re. 1/each.

Outlook & Valuation: We believe Colgate would continue to lead the oral care segment despite tough competition and growth will be driven by strengthening their brand portfolio, invest in launching and relaunching products and focus on expanding reach to both rural & urban consumers. In addition, strong parent support, usage of advanced technology for innovating products as well as increasing brand recall value by spending on advertisements bodes well for its growth. Financially, we have estimated its Revenue/EBITDA/PAT to grow at a 8%/14.2%/15% CAGR over FY23-25E and maintain our Accumulate rating but have revised the target price upwards to Rs 2,289

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