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On right path

In-line revenue; toothpaste posts double-digit growth

Colgate Palmolive’s (CLGT IN) Q3 revenue rose 8.2% YoY to INR 13.9bn, as estimated. Domestic sales rose 8.8% YoY as toothpaste saw double- digit growth with positive volume expansion. Four-year sales CAGR was 5.1%, a slight acceleration from 4.8% in Q2. We estimate low single-digit volume growth in the domestic business in Q3. Focusing on expanding assortment at retail outlet, better communication and premiumization aided double-digit value growth in toothpaste.

Initiatives in place to drive consumption

The new management has been emphasizing on effective communication and increased premiumization focus. As part of its strategy, CLGT relaunched Colgate MaxFresh with unique cooling crystals to deliver superior freshness experience. This has impressed consumers versus direct competition.

CLGT’s new campaign, ‘The Sweet Truth’, which brings to the fore the importance of night-time brushing, reached >300mn in urban India. CLGT is hopeful that this educational message may help drive consumption (increased brushing twice a day).

Gross margin expansion propped operating performance

EBITDA margin expanded 570bps YoY to 33.1%, led by gross margin rise (up 640bps YoY/340bps QoQ). Advertising spend grew 20.2% YoY and was up 150bps YoY, as CLGT focused on investing in brand building per key strategic pillars, while delivering healthy EBITDA margin.

Valuations: Reiterate Accumulate with higher TP of INR 2,675

We up FY24E/25E/26E earnings estimates 4.2%/4.3%/3.8%, to factor in better margin. The new leadership is striving to outpace the market by driving growth in oral care via focusing on premiumization, effective communication and implementing AI-led distribution efficiency.

We reiterate Accumulate, with a higher TP of INR 2,675 (from INR 2,290) on 45x P/E (from 42x) on FY26E EPS of INR 59.5 as we roll-forward.

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