IGI Logo

Colgate-Palmolive (India) Ltd. (CLGT) delivered highest ever Gross & EBITDA margin (GM & EM) in 3QFY24 while topline was in-line with our estimate. Operating beat seems to be driven by better mix+pricing as GM saw a 340bps QoQ improvement, coming as a surprise especially post the Analyst Meet commentary in August’23 guiding modest improvement from 1QFY24 levels. Toothpaste volume have seen expansion in 3QFY24, but growth looks lower than our estimate of 5% because of the assumed sharp mix+pricing improvement. Recent relaunch/restaging of key brands and activations through campaigns, should continue to support near-term growth. Any improvement in market growth rates, especially in rural, should only further accelerate the volume momentum. There has been ~24% upward movement in stock price post 2QFY24 result. We downgrade the stock to REDUCE rating with a revised target price (TP) of Rs2,350 (Rs2,080 earlier), as we assign target multiple of ~43x on Sept’2025E EPS. For further rerating, market share improvement in core & update on inorganic opportunities being explored in personal care will be vital.

Result Highlights

3QFY24 headline performance: Revenue (including OOI) grew by 8.1% YoY to Rs14bn (vs est. Rs14bn). EBITDA grew by 29.6% YoY to Rs4.7bn (vs est. Rs4.4bn). Adjusted PAT (APAT) was up 35.7% YoY to Rs3.3bn (vs est. 3.1bn).

Domestic growth stood at 8.8% YoY, with toothpaste segment witnessing doubledigit growth and positive volume expansion.

Margins: Gross margin saw a strong beat coming at highest ever level of 72.2% (up ~630bps YoY and 340bps QoQ; vs est. 69%). Increase in Advertising spends were up by 150bps YoY to 14.6% (+20.2% YoY on absolute basis) and Staff cost up 20bps YoY was partially offset by lower other expenses (-90bps YoY), meant that EBITDA margin was up by ~560bps YoY to 33.6% (vs. our est. 31.5%), way ahead of our as well as consensus expectations.

 9MFY24: Revenue, EBITDA and APAT grew 8.1%, 25% and 29.8% YoY, respectively. Gross/EBITDA margin up 450bps/440bps YoY to 69.8%/32.7% with Ad spends up 140bps YoY to 14.1% (+20.4% YoY on absolute basis).

Other highlights: (1) Colgate MaxFresh underwent a relaunch with new Campaign “#NeendBhagaoTaazgiJagao”. (2) ‘The Sweet Truth - Brush at Night’ campaign, reached over 300mn people in urban India.

View & Valuation

We are currently building ~8% revenue CAGR over FY23-FY26E (higher than the ~4.5% CAGR delivered over the last five years) led by (a) Expectation of the better overall category growth especially from rural markets, (b) Relaunch of the flagship brand Colgate Strong Teeth & Colgate Max Fresh, (c) Support from innovations and activations, (d) Focus on science-backed and technologically advanced products to drive premiumization. Post the strong margin beat in 3QFY24, there is 7%/9%/9% upward revision in our FY24E/FY25E/FY26E EPS as we now estimate 12.4% EBITDA CAGR over FY23-FY26E (~390bps EBITDA margin expansion as we expect gross margin to expand by 510bps over FY23-FY26E led by easing input cost and better mix). The flow through to EBITDA margin will be restricted due to aggressive advertising spends to support the core as well as innovations, partially offset by cost savings. There has been ~24% upward movement in stock price post 2QFY24 result and CLGT is currently trading at ~52x/42x/39x on FY24E/FY25E/FY26E EPS as we build in ~14% EPS CAGR over FY23-26E. We downgrade the stock to REDUCE rating with a revised TP of Rs2,350 (Rs2,080 earlier), as we assign target multiple of ~43x on Sept’2025E EPS (3yr/5yr avg fwd. multiple: ~39x). For further rerating, market share improvement in core & update on inorganic opportunities being explored in personal care will be vital.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632